A Diet For The New Year

Show of hands ... how many of us are changing our dietary habits in the new year?

That many? Wow.

If you're starting a diet, you're trying to get away from this stuff, right?

... and you're trying to move toward this stuff, aren't you?

Let's put this into marketing terms.

• Pop Tarts are chocked full of vitamins and minerals - which are good for you in the short term ... but in the long-term, the high fructose corn syrup is going to wreak havoc, isn't it? Pop Tarts, then, are like discounts and promotions ... great in the short-term, bad for long-term health.
• Oreos ... you can take 'em with you, anywhere. They're portable. Oreos are mobile. And all anybody focuses on with mobile is the flashy stuff ... apps and data and using social to spread the word.
• Campbells Home Style Soup ... this is omnichannel, isn't it? You do a bad job of blending the chicken and vegetables and chowder and you've got garbage. So we spend all day guessing what the right mix is, never testing, mind you, just plowing forward trying to please mythical trade organizations and vendors and consultants who will turn on you the minute a new hot trend comes to the forefront.

Meanwhile, we have alternatives ... healthy alternatives.

• Spinach is merchandise, isn't it? Spinach makes you strong. Without merchandise (or product, or content, depending upon your business model), you have no reason for customers to ever interact with your business. Merchandise is everything. Everything! Load up on merchandise, folks.
• Carrots. We believe carrots help with vision, but Snopes tells us otherwise (click here). Instead, carrots are loaded with Vitamin A. You can get vitamins via empty calories (Pop Tarts), or you can juice the carrots and simply infuse yourself with health. Carrots are like Service, aren't they? When we inject our business with good customer Service, our merchandise sells better.
• Apples. An apple a day keeps the doctor away. You only need a doctor when you are not healthy. Chasing discounts, promotions, marketing "strategy", social, branding, these are things that eventually erode the health of a business. By focusing on the basics (like eating apples), you stay healthy, and you won't need to hire a consultant (like me) to come in and diagnose the problem.
• Onions. If you cut a lot of old-school onions, your eyes tear up, don't they? In marketing, onions are like Story - if you tell a compelling story, the customer may well feel emotion. When you have good merchandise, sold with great service, and a wonderful story, customers spread the word for you, amplifying your social media presence, generating low-cost new customers.

The images make it clear what we should do in 2014 - our diet needs to focus more on spinach, carrots, apples, and onions.

Maybe it is time for us, as business leaders, to try a marketing diet in 2014 as well?

Dear Catalog CEOs: What Is Happening? Ten Major Issues

Dear Catalog CEOs:

We read that Black Friday - Sunday was not good, in spite of the deepest discounts we've ever seen (70% off nearly the entire store at JCP on Black Friday, for instance), and in spite of opening on Thanksgiving night instead of Friday morning.

Then we read that Cyber Monday hit an "all time record" (like that's hard to do).

We read that omnichannel is the secret to great retail performance, and yet, we seldom if ever see retailers posting great performance anymore. Don't you think that if omnichannel was so darn powerful that we'd combine omnichannel with deep discounts and see the greatest performance in the history of retail?

We read that mobile is the future, and when we look around, it's easy to see proof that mobile is the future.

What is happening?

Let's tie stuff together.

Issue #1: E-commerce is about to be "cut off from the bottom". In other words, as Jasmine earns buying power, she's going to pick mobile-enabled businesses that fit her lifestyle. E-commerce folks will tell you that mobile and e-commerce are the same thing. They are not. Mobile is all about limiting the assortment for your specific needs at a specific point in time ... e-commerce is all about a large assortment that the customer searches through.

Issue #2: E-commerce is about to be "cut off by Amazon". Do you realize that 25%+ of e-commerce funnels through Amazon? As Amazon mulched e-commerce, e-commerce mulched catalogs, with the net being a gain for both Amazon and e-commerce. The mulching of catalogers is over. E-commerce, to grow, must either mulch retail, or must mulch Amazon. Which outcome is more likely to happen? We're essentially in a zero-sum environment, so demand gains have to come at the expense of others.

Issue #3: Retail (branded product available anywhere/everywhere) is about to be "cut off by Amazon", and to be "impacted by mobile". If you have proprietary product, Amazon isn't as big a deal. If you sell what Amazon sells, God help you. In response, retailers are going "omnichannel". Good luck. The solution to selling the same stuff Amazon sells is not to sell it at comparable or more expensive prices in any channel. We all know this. But since we don't have an answer, we leverage omnichannel as our version of hope. Hope is not a strategy. And by the way, if you are Orange Julius or any other mall-based business that is essentially the parasite on a mall-based host (like Macy's), how excited are you about mall-based stores promoting online business over in-store traffic? A mall-based digital distribution center solution doesn't solve problems for in-store businesses that require mall-based traffic. Amazon, and the predictable omnichannel response, do not help most of the stores in a mall. Think about what happens to a mall in five years with a subsequent 20% traffic hit?

Issue #4: Given how serious the retail condition is, given how critical in-store traffic is to cover debt loads, retail will continue to discount heavily. This will cause all sorts of short-term benefits and long-term problems. If you're a 5% pre-tax profit retailer or worse, God help you. Weak retailers without 20% e-commerce year-over-year infusions will really, really suffer as the discounting accelerates. The discounts represent a thinning of the retail herd.

Issue #5: Demographics are reshaping commerce. Nobody talks about it. Everybody should talk about it. Demographics manifest themselves via channels ... catalogs are owned by Judy ... e-commerce and Amazon are the realm of Jennifer ... and mobile is owned by Jasmine. Yes, I get it, your Grandmother plays Candy Crush on a tablet, fine. I'm more interested in how Jasmine and Forever 21 interact on a phone, because that's the future, folks. And in ten years, a decade of mobile, retail and Jennifer will yield a version of retail we cannot envision today. Business is going to be transformed by a morphing of demographics and technology.

Issue #6: Service. Are you a rural customer ordering from your favorite "brand" after using a free shipping promotion? My condolences, because your product will arrive in ten days. Meanwhile, if you live in an urban area, the trend is moving to same-day (and eventually, same-hour) shipping. Urban Jasmine is going to be fundamentally transformed by this level of service, all available on her phone. Look out. Meanwhile, the rural customer with 3mbps internet access is basically living in the 1990s.

Issue #7: Vendors. They're trying to survive, just like you. Ask the USPS - they're going to extract as many pennies from catalogers as possible, to stay alive, while stabbing you in the back by giving Amazon exclusive Sunday product delivery. You fund the present so that the USPS can find their future. The co-ops are integrating your offline transactions with social media to yield "big data". You are going to be used your vendors in an effort to fund their future. They realize that cataloging is not the future, they just don't want to tell you what they think, they'd rather you fund their future. Pay attention to vendors who "have your back".

Issue #8: Real Estate. In 1974, catalogers issued 600 page catalogs. In 1994, targeted 124 page catalogs were the norm. In 2014, e-commerce and unlimited assortments rule. Mobile is going to take us back to 1994. There's simply no real estate available in mobile. This will cause there to be merchandise winners and merchandise losers. Somehow, e-commerce folks who have been trained to "make everything available" to the customer must learn how to "make only that which is relevant to each individual customer" - personalized, targeted, relevant. It will take five years for folks to get to a reasonable outcome - a lot of trial, error, and lost profit. Almost nobody wants to talk about this, by the way, because it is truly problematic from a selling standpoint - check your mobile conversion rates for confirmation.

Issue #9: Distractions. Big Data. Social Media. Omnichannel. All of this is a distraction. Now, is Big Data real? Maybe. But so what? Of what possible good is it to target the right customer with the right promotion at the right time if what you are selling is available on Amazon at the same price and they're going to deliver it free within 48 hours and you can't do that? And trust me, customers don't want to "engage" with brands, they don't want to have "conversations" with brands. Customers want what they want, and if a conversation is part of getting what they want, they'll tolerate it. Every one of us has to filter out noise, and focus on what matters. For so many of us, we have 40% annual repurchase rates, and if the customer repurchases, they buy 2 times a year. These metrics improve when customers like our merchandise, they sink when customers don't like our merchandise. It's that simple. We're going to have to get much, much better at filtering out the noise.

Issue #10: Merchandise. If there's ever been a #fail in marketing, it's the trend in merchandising in the past five years. Go spend a half-hour with your marketing team, and find out just how bankrupt they are when it comes to understanding merchandising strategies. Marketing productivity stinks, for the most part, because the merchandising team is messing up. And then, our friends, the marketers, compound the problem. They send customers to landing pages with clearance product, and then brag when conversion rates increase (not my fault, I'm driving traffic to the site). In fact, ask anybody in your company how many new items were introduced in 2013, and how that number compares to the past five years?! You're lucky if 1 in 100 can provide you with an answer to this most basic of questions. Your marketing team should be beating the living daylights out of your merchandising team. They should demand highly productive items to feature in email, on landing pages, in the first twenty pages of a catalog, in social media (instead of engaging customers, why not sell customers something). In 2014, demand that 20% of the time your marketing team spends working on issues is spent working on understanding what sells, and what does not sell.

All businesses are dealing with the ten issues above - acting chaotically in the short term. Remember the internet bubble? That era represented smart people acting chaotically. Here we go again. All of this will make sense in five years, when Jasmine becomes the customer and mobile is the delivery mechanism.

2014 is the year you get to start choosing your future. Prior to 2014, catalogers were told to be "multi-channel". And we listened. Big mistake. Starting in 2014, we get to evaluate the seven issues outlined above, charting our own course.

In early 2014, you'll have Executive planning meetings. These eight issues should be discussed, by you, and by your Executive Team. Let me know if you need help.

Dear Catalog CEOs: The Nonsense Of Cyber Monday

Dear Catalog CEOs:

As you prepare to offer 30% off plus free shipping, or whatever nonsense the trade journalists encourage you to do so that trade journalists can generate additional page views that lead to advertising revenue for trade journalists, I want you to run a query for me.

Query #1:  For the past five years, sum Black Friday - Cyber Monday demand.

Query #2:  For the past five years, sum October + November + December demand.

Query #3:  Subtract Query #1 from Query #2.

I've run this query for numerous clients. The results are interesting. Here's an example:

Black Friday - Cyber Monday Demand:

• 2008 = $1,500,000.
• 2009 = $1,800,000.
• 2010 = $2,200,000.
• 2011 = $2,700,000.
• 2012 = $3,400,000.
• 5 Year Compound Annual Growth Rate (CAGR) = 23%.

Looks like Cyber Monday works, huh?

October - December Demand:

• 2008 = $23,000,000.
• 2009 = $23,500,000.
• 2010 = $24,000,000.
• 2011 = $24,500,000.
• 2012 = $25,000,000.
• 5 Year Compound Annual Growth Rate (CAGR) = 2%.

October - December Demand, After Subtracting Black Friday - Cyber Monday

• 2008 = $21,500,000.
• 2009 = $21,700,000.
• 2010 = $21,800,000.
• 2011 = $21,800,000.
• 2012 = $21,600,000.
• 5 Year Compound Annual Growth Rate (CAGR) = 0.1%.

As the Black Friday - Cyber Monday timeframe grew in importance, the rest of the business struggled to keep up. In fact, the business featured here is failing - unable to grow demand during the other timeframes. In other words, demand is being cannibalized out of the October - December timeframe, into the Black Friday - Cyber Monday timeframe.

And guess what? The demand that is being cannibalized is full price demand, or lower-than-average discount demand. You take a full price order with free shipping from mid-November, and move it to a 30% off plus free shipping on Cyber Monday.

No, that's not #winning. That's nonsense. That's called #HurtingYourBusiness.

Why do we purposely hurt our businesses, just so we can be part of the #buzz?

Dear Catalog CEOs: It Turned Out Different

Dear Catalog CEOs:

Thumb through the Internet Retailer Top 500 some day - just for giggles. Among the top 30 in the IR Top 500:

• Only 3 Are Web-Only: Amazon, Netflix, Newegg. Interestingly, Amazon represents something like 25% of all e-commerce. Geez.
• A whopping 17 are retail brands: Staples, Wal-Mart, Sears, Office Depot, Best Buy, OfficeMax, Macy's, Grainger, Costco, Target, Gap, Victoria's Secret, Williams Sonoma, Kohl's, Barnes 'n Noble, Nordstrom, Toys 'R' Us.

From 30 to 100, somewhere north of 35% of the businesses are classified as web only.

From 101 to 200, about 30% of the businesses are classified as web only ... with annual sales of about $150,000,000 ... totaling $15.0 billion ... about 25% of what Amazon does.

From 201 to 300, about 35% of the businesses are classified as web only ... with annual sales of about $75,000,000 ... totaling $7.5 billion ... about 12% of what Amazon does.

From 301 to 400, about 40% of the businesses are classified as web only ... with annual sales of around $37,000,000 ... totaling $3.7 billion ... about 6% of what Amazon does.

From 401 to 500, about 55% of the businesses are classified as web only ... with annual sales of around $25,000,000 ... totaling $2.5 billion ... about 3% of what Amazon does.

From 501 to 1,000, about 58% of the businesses are classified as web only ...with annual sales averaging $7,500,000 ... totaling $3.5 billion ... about 5% of what Amazon does.

This should cause us to pause, to think.

• Amazon did $61 billion last year.
• Companies 2-10 did $50 billion last year.
• Companies 11-100 did roughly $110 billion last year, +/-.
• Companies 101-1000 did $32 billion last year.

The "1%" in e-commerce generate more than 40% of e-commerce volume.

My goodness.

You were promised that "multichannel" would cause you to be successful. Remember all that mindless hype? Vendors, trade journalists, bloggers, consultants, they all told you that a combination of your catalog and e-commerce was unbeatable.

Wrong.

Those folks, with no skin in the game, sold us a story. 

While we focused on being multichannel, retailers transitioned their catalog business to e-commerce (like when I worked at Nordstrom), or they increased sales by 10% by adding a direct marketing channel that was previously (and foolishly) missing.

And Amazon, following a decidedly non-multichannel model, became e-commerce, mulching all of us in the process.

It turned out different than the experts told us it would turn out. 

There's the 1%, and then the rest of us.

The majority of e-commerce brands, as illustrated above, became niche players unable to crack the $30,000,000 barrier. There's something magical about that $30,000,000 level ... it's where the easy work ends, it's where the spending begins. And there's only so much you can spend in classic e-commerce (paid search, retargeting, affiliates, um, uh, hmm) before you have to branch out and try something different (or generate improved merchandise productivity).

So everything we were told was wrong. The average e-commerce business fills a niche. Retailers finally started a direct marketing channel, and because of sheer volume and brand equity, sucked the life out of direct marketing. And Amazon won the battle. Online, there's always one winner.

Where does this leave us?

Well, we've always been niche focused. No, not L.L. Bean, but if you are Cuddledown of Maine, you were never going to hit a billion dollars in sales.

And because of our lust for a multichannel model, because we overstated our matchbacks in order to keep mailing catalogs, we found our niche.

Our niche, of course, is 55+ rural customers who love being romanced via paper.

A pivot to a 28 year old shopper will require pain, coupled with a low probability of success.

A pivot to a 44 year old shopper is possible, but requires taking Amazon head-on. Good luck.

It's time to start giving serious thought to what the future looks like. The "multichannel" strategy of the past decade didn't work. Where do we go from here?

Dear Catalog CEOs: The Deeper Meaning Of Amazon And USPS

Dear Catalog CEOs:

Well - you and the vendor community sure enjoyed this rant (click here), after the USPS agreed to deliver Amazon packages on Sundays in NY/LA this year, more markets next year. This article is trending toward a top-10 readership level for 2013. In other words, you are interested in the topic.

You understand, of course, that there is a much deeper meaning than just Amazon and the USPS, that there's so much more to this story that their relationship?

In 1993, cataloging was at the top of the food chain. Your vendors were there to support you. You had the power, they needed your money.

In 2003, Google and search and all pre-social, pre-mobile activities were peaking. Your vendors worked hard to coin the phrase "multi-channel", encouraging you to keep mailing catalogs, so that they could still remain relevant.

In 2013, with catalog in-mail volumes down 40% from 2007 (no, that's not just the Great Recession, that's the realization that the world is changing), your vendors are now searching for their path to the future, independent of you.

Think I'm wrong?

I was in a meeting recently where the marketing director told me she couldn't reduce circulation because their paper rep locked them into a six month, non-negotiable supply of paper. Obviously, the paper rep isn't thinking about what is best for the cataloger (though I bet the paper rep could find more paper if the cataloger needed it). No, the paper rep is trying to put food on the table, and can now do that for another six months.

I was in a meeting recently where I learned all sorts of interesting things that some co-ops are doing with your data. They realize that your mail volume will decline another 40% over the next six years, so they are busy using your customer acquisition investments to research how to best integrate offline transactions with social/mobile/local data, to provide a 360 degree view of customer behavior that can be sold to "brands". Pay attention to how this works - you contribute data for free - they make you pay for access to data, then they use your money to create products that allow "brands" to pay to access the data a second, a third, a fourth, an eleven-thousandth time.

Big Data!

In other words, this co-op no longer cares about you, the cataloger - if they did, they'd put experienced reps and modelers on your account and actually protect your data as a competitive advantage for your continued loyalty to them. You are just a data input. Remember back in the mid 1990s when the co-ops begged (yes, begged, I was there) for you to participate with them? When's the last time your co-op begged you for anything? No, your co-op has moved on, and is charting a path to a future where you are nothing more than a data input to them. It's been that way for some time, to be honest.

The USPS is charting a path to the future, and hint, it only includes the merchandise you sell, not the delivery vehicle that creates the sale (the catalog) ... hence, a partnership with Amazon.

I was in a meeting recently where a printer-backed start-up told me that their marching orders were not the product they were selling to catalogers, but the data that the catalog customer would create for them. This is coming from a printer-backed start-up ... a printer ... a printer looking for a path to the future. The printer realizes that it must find a path to the future, and that path will be less and less dependent upon you, over time.

Your search vendor, your email vendor, your database hosting company, those who work in your affiliate program, or retargeting, your matchback vendor, your attribution vendor, they're all using your data as a short-term bridge to help them get to the future. 

That future, of course, is Mobile + Data + Social + Local = Youth + Revenue.

Your vendors are leaving you. Notice that they aren't firing you. 

They need your money so they can invest in Mobile + Data + Social + Local = Youth + Revenue.

You are funding their future.

This is the deeper meaning of the Amazon/USPS relationship. The USPS is using your postage to invest in a future with e-commerce brands needing to deliver merchandise in real time.

Twenty years ago, Amazon didn't exist, and your vendors needed you.

Today, Amazon is on the verge of crushing most standalone direct marketers. Your vendors need a path to the future that likely does not include you.

The multichannel experiment failed miserably, for if it were successful, Amazon would have lost and the USPS would be giving you incessant discounts to keep your business - or the USPS would be offering you Sunday delivery. The customer chose Amazon. The USPS chose Amazon. Multichannel lost.

It's time for you to do two things.

1. Choose vendors who help you get to the future.
2. Choose your own path to the future.

Can we (our industry) have a meaningful discussion about our shared future? I'll help facilitate this discussion. Email me (kevinh@minethatdata.com) with your thoughts.

Dear Catalog CEOs: Amazon + USPS = You Do Not Count

Dear Catalog CEOs:

Well, you've been humiliated once again (click here please).

You sold your wares on Amazon, teaching Amazon what sells and what doesn't sell. Amazon used that information, and is now headed toward $100,000,000,000 (yes, that's one-tenth of a trillion dollars of annual sales ... it will take less than three years to get there at current growth rates). In a total market where growth is at or less than inflation, that level of sales volume has to come at your expense, don't you think?

Meanwhile, you are busy lobbying a dysfunctional Congress to keep the USPS viable. You are fighting to help the USPS, because, of course, helping the USPS stay viable allegedly keeps your business viable.

And while you're busy lobbying to help the USPS (spending your time helping the USPS, not spending that time selling your own wares via e-commerce - how silly is that when you stop to think about it), here's what the USPS thinks of you:

1. Considers ending Saturday delivery of your catalogs.
2. Strongly considers significant postage increases - charging you significantly more for the same level of service.
3. Provides your biggest competitor, a non-cataloger named Amazon, a business that does not fund the USPS via the kind of postage you pay, exclusive Sunday delivery of their products in major markets (NY/LA this year, many more next year), helping run you out of business even faster.

How utterly feckless can our industry be? 

I mean, you paid postage for decades - decades! You funded the pensions of the very Executives who decided to sell out to Amazon - and I get it, Amazon is getting close to being bigger than all of us put together, it's hard to blame the USPS. But come on! Do you treat your loyal customers this way?

This tells us that the future of the USPS is not the mailing of pieces of paper - it's the delivery of merchandise. When viewed via that perspective, Amazon should get top priority.

Merchandise.

Remember, you funded the USPS so that they could get to this point where they pivot to serving Amazon better than they serve you.

Our industry is Charlie Brown, with the USPS + Amazon playing the role of Lucy, pulling the football out at the last second of an attempted kick.

It's common for postage to represent 5% to 10% of annual net sales - often equal to 50% to 80% of all other fixed costs incurred by your business. Think about that whopper of a statement for a moment. You spend more on postage than almost anything else.

How has your loyalty been recognized by the USPS?

When are you going to stand up for yourselves and say "ENOUGH"?

As Lucy says at the end of this video ... "Isn't it peculiar, Charlie Brown, how some traditions just slowly fade away?" (click here for the video if you follow via email or RSS). The USPS/Amazon Sunday partnership helps facilitate the evolution of our tradition. 

Only you can fix this. 

You know what you have to do to evolve. Your future involves spending much less money with the USPS. Time to get busy. It's clear the USPS and Amazon don't care about you. We knew Amazon didn't care. Now we know how the USPS feels about you. Get busy.

Dear B2B Catalog CEOs: Mail More - Yes, Mail More

Dear B2B Catalog CEOs:

There's a misconception out there among vendors who you work with. They will tell you that I want companies to mail fewer catalogs. Vendors say this, of course, because they want you to work with them, having you mail much more often.

I don't care if you mail more often, or if you mail less often. I care that you DO THE RIGHT THING FOR YOUR BUSINESS, DOING SOMETHING THAT MAXIMIZES PROFIT.

In 2/3 of the Catalog PhD projects I work on in the B2B world, the end result is a recommendation to MAIL MUCH DEEPER, AND MORE OFTEN.

Your vendor partners don't tell you that, do they?

Give the booklet a read - and when you are ready to consider changing your contact strategy, give me a holler (click here to purchase on Amazon).

Dear B2B Catalog CEOs: Price Points

Dear B2B Catalog CEOs:

Price points yield many interesting outcomes in B2B projects.

In B2C, there is relative uniformity of price points. Yes, when I worked at Nordstrom, you could buy $19 socks or $499 handbags, but that's a department store. If you go to Chicos, customers tend to align around price points that are uniform ... cheap = $10 ... expensive = $90.

In B2B, the range between cheap and expensive is far greater.

This image is from Northern Tool and Equipment. As you can see, Hydraulic Pumps are expensive. And likely profitable. At a $200 price point, let's pretend gross margins are 50% - that's $100 of profit per item sold.

Meanwhile, on the other end of the spectrum ...

... you have Nut Drivers. Pay $34.95 and at a 50% gross margin, you get +/- $17.50 profit per item sold.

Two dynamics happen.

1. A small fraction of the housefile will buy the expensive items, but these customers are highly profitable.
2. A larger fraction of the housefile will buy inexpensive items, but these customers generate marginal levels of profit.

Pay close attention to the items you acquire a customer with. The high price items signal a willingness of a customer to spend larger amounts of money, and consequently, signal high long-term value customers. Customers acquired via low price point items need to be closely monitored - if they quickly upgrade to high-price items in a second purchase, then you're cruising!

Low price point items do serve an important purpose, especially among high price point customers - they fill in gaps that allow the business to keep the customer active. Instead of a customer buying every 24 months, we convert the customer into one who buys every 4-6 months. Low price point items can play an important role.

Dear B2B Catalog CEOs: Payback Period

Dear B2B Catalog CEOs:

There's a significant difference between you and your B2C cousins.

In B2C marketing, you're acquiring a customer that has a 40% chance of buying again, and if the customer buys again, the customer might purchase 3 times at $100 each over the next three years. This nets the B2C marketer $120 demand over three years. After backing out expenses, you're lucky to take home $25 profit. This means that the B2C marketer cannot afford to lose a ton of money acquiring customers.

In B2B marketing, you're acquiring a customer that has a 30% chance of buying again, and if the customer buys again, the customer might purchase 3 times at $400 each over the next three years. This nets the B2B marketer $360 demand over three years. After backing out expenses, you're blessed to take home $70 profit.

If the B2C marketer is taking home $25 profit over three years, and the B2B marketer is taking home $70 profit over three years, then the B2B marketer has a major advantage - the advantage of a stronger/longer payback period.

The B2B marketer can invest - almost over-invest - in new customers.

Your mileage will vary, of course.

But it's worth pointing out that if your AOV is north of $300, you have an opportunity to greatly ramp up your customer acquisition activities - investing today to protect the future of your business.

When you work with the folks at Merit Direct or your preferred vendor - focus less on all the technical stuff - focus on how much you can truly invest. Or email me (kevinh@minethatdata.com) and we'll figure out just how deep you can invest.

Dear Catalog CEOs: Circulation Evolution Over TIme

Dear Catalog CEOs:

Yes, I'm watching you!

I'm watching how you manipulate circulation over time.

Back in 1995, life was good, and catalogs were at the top of the food chain. Quite honestly, we were lazy back then ... profit was just sitting there, waiting to be harvested, and we didn't pick it all up.  It was common to see a profit factor of 30% - 30% of demand flowed-through to profit. I recall arriving at Eddie Bauer in 1995 - I saw metrics in the 25% to 29% range - and that company generated 5% pretax profit. That's some serious laziness, when your gross margins were more than 50%.

In 2004, we applied matchbacks. Catalogs weren't quite as productive as in 1995, but we managed declining productivity by cutting costs (yielding a profit factor of 35%). As a result, slightly higher book costs and better profit factors and lower productivity yielded about the same amount of profit.

Since 2004, customers fled to the internet. Today, it is very common for pure catalogers to see between 50% and 80% of demand happen anyway, without mailing a catalog ... and for catalogers with customers age 65ish, the ratio is between 25% and 50%. This leads to dire consequences for the catalog (not corporate) profit and loss statement. And in 2013, those under the age of 30 have now fled the internet, moving to a hybrid of mobile+social ... moving two full steps away from the catalog business model.

In response, we cut even more expense - today, it's common to see 45% to 50% of demand flow-through to profit. That's amazing! And thoroughly depressing.

We accomplished this by removing humans from our business. 

• No humans at the call center (out of necessity).
• No humans in the information technology department (outsourced to vendors).
• No humans in customer acquisition (outsourced to co-ops).
• No humans in search (outsourced to vendors).
• No humans in email marketing (outsourced to vendors).
• No humans analyzing results (outsourced to matchback/attribution experts).
• No humans in the warehouse (outsourced to robots).
• No humans managing the website (outsourced to vendors).
• No humans managing cross-selling, pay-per-click, retargeting (outsourced to vendors).

Yes, we still have humans coordinating these programs - but not managing these programs. There is a big difference between being accountable, and holding vendors accountable.

What happens when we remove humans from merchandising and creative?

But we get to keep mailing catalogs.

Take a look at the red numbers in the table. In 1995, 80% of the profit came from 60% of the circulation. In 2004, 80% of the profit came from 60% of the circulation. In 2013, 80% of the profit comes from 30% of the circulation.

In other words, the economics of catalog marketing are changing. There's only so much expense that can be trimmed ... and catalog costs will continue to rise ... and demand will continue to leak out of the catalog ecosystem into e-commerce (and mobile), leaving fewer and fewer catalog-centric customers to mail to.

So what does the scenario look like in 2022? Maybe like this:

Oh boy!

In 2022, given current trends, productivity will drop further, as e-commerce is old-school, mobile is established, and hologram marketing is capturing market share. This leaves us with little profit - no amount of financial manipulation fixes the problem.

And did you notice that profit is close to unchanged at any circulation level? Some will cut back to almost no circulation at all - some will push their chips all-in and mail deep - and everybody will make peanuts, regardless. It's already happening!

Has anybody pointed this out to you?

Have your marketing team perform this analysis for you, over time. Apply proper incremental rates after evaluating mail/holdout tests. You're going to see something similar to this table.

How does this analysis change your thinking about the future?

I know, nobody talks about this. But if your average customer is age 55+, the 2022 scenario is coming. For many, it's already here.

Dear Catalog CEOs: The 80/20 Rule

Dear Catalog CEOs:

Did you read this article (click here)?

A portion of this article made sense to me, and it directly relates to your catalog business.

Most of us are dealing with catalog marketing as if it was 1995. Deceived by the way matchbacks overstate results, we mail the same circulation depth we always have. If we used to mail 400,000 housefile names, then we still mail 400,000 housefile names.

Back in 1995, our profit and loss statement looked like this:

• Demand = $3.00 per customer.
• Profit Factor = 30% of demand.
• Cost of the Catalog = $0.40.
• Profit = $3.00 * 0.30 - $0.40 = $0.50 per customer.

Today, when we properly evaluate incremental demand via mail/holdout tests, our profit and loss statement looks like this:

• Demand = $3.00 per customer.
• Incremental Demand = $1.50 due to catalog, $1.50 happens anyway online.
• Profit Factor = 40% of demand.
• Cost of the Catalog = $0.60.
• Profit = $1.50 * 0.40 - $0.60 = $0.00 per customer.

Now, 9 in 10 catalog CEOs would look at this situation, and say "fine, we'll keep mailing customers".

Of course, in five years, the relationship is going to look like this:

• Demand = $3.00 per customer.
• Incremental Demand = $1.00 due to catalog, $2.00 happens anyway online.
• Profit Factor = 45% of demand.
• Cost of the Catalog = $0.65.
• Profit = $1.00 * 0.45 - $0.65 = ($0.20) per customer - a loss.

But there's no sense talking about what is coming ... you are busy projecting 2014 as we speak.

Back in 1995, the 80/20 rule was largely intact ... but it meant that you could mail very, very deep, and keep generating profit.

Today, with the internet (and, increasingly, mobile) generating sales that happen independent of a catalog, without any catalog mailings at all, the 80/20 concept allows you to greatly free up your advertising budget. 20% of the 12-month buyer file is responsible for 80% of the demand generated by a catalog - the world has changed.

In fact, in most of my Catalog PhD projects, I can cut 25% to 30% of the housefile circulation with only a 2% to 5% impact on demand, greatly increasing profit.

Go rank your housefile circulation, top to bottom - then sum cumulative profit. I'll bet you learn that almost all of your profit comes from the top of the housefile. 

Purchase on Amazon, click here.

Hire Kevin for your own Catalog PhD project - email me (kevinh@minethatdata.com).

Dear Catalog CEOs: 2020

Dear Catalog CEOs:

Hi! How was your summer? It's really winding down ... a week to go in our traditional summer.

While I was away, did you spend any time talking about the future? No, not Cyber Monday 2013, I'm talking about the real future, like the year 2020?

We sure do talk about the past. Recently, somebody dropped the "Lands' End cut back on catalogs in 1999 and it hurt their business, so we're not going to do that" line on me. I keep hearing that one from catalog experts.

A quote from 1999.

When that's what we talk about, we don't want to face the future.

For too many of us, the average age of our customer increased by about five years since 2006, and is now +/- 60 years old.

Sixty.

We can thank the co-ops for this, we can thank pundits for this, and we can thank ourselves for this.

• Ourselves: On the marketing side of the table, we completely ignored merchandise productivity. We measured what sold best - we did not think about what this meant. What sold best was what appealed to a +/- 60 year old customer, causing us to offer even more merchandise for these customers, causing us to attract even more +/- 60 year old customers, creating and endless cycle of age increase.
• Co-Ops: We paid +/- $0.06 a pop for millions of names, and couldn't have cared less who these people were, as long as they responded. Co-ops obliged, giving us buyers who were ... wait for it ... wait for it ... +/- 60 years old!  Woo-hoo!
• Pundits: They told us we had to be "multi-channel". We listened. We listened because it allowed us to keep mailing catalogs. The alternative was to truly compete with Amazon, and who the heck wants to do that? In order to keep mailing catalogs, we had to goose response. How did we do that? By working with co-ops, who gave us +/- 60 year old customers who liked merchandise that appealed to +/- 60 year olds, which caused our customer file to separate from the mainstream population of the United States.

We are where we are, now. I suppose there's no need to look back anymore.

So let's look ahead to the year 2020.

We'll need to make a few assumptions, won't we?

• Unless we separate from the co-ops, our customer file will age another five years, and will be +/- 65 years old in 2020.
• Co-ops will continue to separate from us - some of 'em are actively working with Facebook and their ilk to match offline purchases to online sentiments - we will fund the research that allows them to separate from us and have a future. Think about that one for a moment - they run us into the ground, and use our funding to protect their future. Interesting, huh?
• Big Data, a complete lack of privacy, and the sensing of our every offline move (mobile devices track every offline bread crumb) create a real-time marketing world that catalogs have no place in whatsoever. Why send a catalog when you can respond in real time via machine learning / neural networks? We'll either create data, or we'll buy data. Catalogers have a long history of buying data. Those who buy data will struggle to generate 10% pre-tax profit levels. Hint - Amazon creates data.
• What happens when the average person/customer turns 65 years old? Retirement?
• If our merchandising strategy appeals to a 65 year old, what products and services do you think we'll be forced to offer to keep response rates high?
• By 2020, e-commerce as we know it will not exist. Customers 18-29 will respond to businesses that barely exist today, but will be mobile/social/virtual and therefore are competing on a level we cannot even imagine today. Customers age 30-44 (today's Jasmine) will have settled on their preferred brands. Will catalogers be a preferred brand? Unlikely. So the cataloger that struggles with Jennifer (who will be age 45-58) today will need to have Jennifer as a customer in 2020 to have a chance to succeed. Jennifer, the customer who embraced Amazon, will need to switch from whatever the Amazon-like e-commerce experience will evolve to (oh, it will be different) to a catalog-centric business model. What are the odds of that happening?
• Assuming that the core customer continues to age, it's going to be a splendid time for the private equity folks, don't you think?

Now, we can wait to see how the world evolves between now and 2020. Heck, it's possible in late 2020 that Hillary Clinton will have earned a second term or Rand Paul will have obliterated government as we know it - either possibility causes one to stop and think.

Or we can do something between now and 2020 to create our own future.

Show of hands ... how many of you have a process in place to plan for Catalogs 2020?

How about taking a moment to document your thoughts? What does a catalog brand look like in 2020? And what are we all willing to do to shape that future before the co-ops shape it for us? Discuss in the comments section, or send me an e-mail message (kevinh@minethatdata.com).

Dear Catalog CEOs: A Business Bubbling Under The Core Business

Dear Catalog CEOs:

Here's an interesting quote ... I heard it recently from one of your peers.  I had not heard a true catalog executive offer this previously.  It marks a shift in thinking.

• "We were told we had to align all of our channels.  Yet last week, we're looking at merchandise reporting, and we can see the proof in the pudding.  We have online items that are fundamentally different than our core catalog items.  They sell reasonably well, and with minimal ad cost, they're very profitable.  But more important, this tells me that we're serving different customers.  We can no longer think about the catalog as the center of the ecosystem.  We have different customers.  Older customers and younger customers.  We need to meet all of their needs.  The catalog can't accomplish our goals anymore.  This will disrupt our entire organization, how we do things."

I'm going to stop right there.  Take a moment, and let the paragraph sink in.  I'll be back in a moment.

...

...

...

I'm back.

This was one of your peers, not me, saying this.

It may just be that you have a new business, bubbling under the surface of your core business.  If you look at the data the right way, you'll see this.  The future is staring you right in the face.

Now that you are back from a weekend of enjoying fireworks, spend a little time thinking about the quote, thinking about what it means for your organization.

Dear Catalog CEOs: Terrible Attribution or Matchback Reporting

Dear Catalog CEOs:

For the past ten years, you've been told to match back online orders to the catalog that "caused" them.  We conveniently ignored the "cause" portion of the statement - we just took every single online order and gave the catalog credit.  This is fun, of course, because it guarantees that we keep mailing catalogs, no matter whether the catalog had any impact or not.  In fact, if you mail every single customer in your database a catalog, then you will attribute every single online order back to the catalog.  You see this, often.  Of course it's nonsense.  But it keeps the vendor community employed, and it keeps those who love producing catalogs employed, so the behavior will not change.  I've railed against the behavior for the better part of a decade, few listened.  I cannot change those who do not want to change.

I can, however, point out nonsense in the reporting generated by the vendor community.

Too often, we see attribution mistakes so nasty that they should be pointed out, immediately.  And they aren't.

For instance, say your business possesses an average order value of $150.  You look at a distribution of average order values, and notice that only 10% of your orders are under $35.

Then your vendor produces a matchback analysis for you, by channel.  And you see something like this:

• Catalog = 1,000 orders, average order value = $211.
• E-Mail = 200 orders, average order value = $160.
• Search = 200 orders, average order value = $160.
• All Other Online Orders = 500 orders, average order value = $20.
• Totals = 1,900 orders, average order value = $150.

What is wrong with this picture?

Well, the attribution routine completely butchers actual attribution, doesn't it?  We know this to be true, because only 10% of company orders are < $35, and yet, the attribution program says that 500/1,900 = 26% of company orders are attributed online, with an average of $20.

The data clearly indicates that this attribution vendor has no concept of reality.  None.  It simply doesn't matter that the vendor uses a "proprietary and sophisticated algorithm" ... the algorithm is simply and horribly wrong, and will cause you to make terrible business decisions.

I see this outcome, often.  Your reporting is just plain terrible.  Either you don't care, or you don't even look at the reports.

Do you even look at the reports?

Do you ever challenge your marketing team to actually think about the reports generated by their favorite matchback vendor?

It's one thing to outsource marketing attribution to industry experts, giving them the authority to know your business better than your own internal staff.

It's quite another thing to completely accept terrible, terrible reporting as truth.

And that's what too many of you you're doing.

Dear Catalog CEOs: Cataloging For Dummies

Dear Catalog CEOs:

Most of you have heard of the "... for Dummies" series.

The series covers the basics, the "best practices" if you will, to get you up to speed, quickly.

Maybe we should review some of the tidbits we're hearing:

Cataloging For Dummies:  Align all of your channels, the customer demands the same experience in all channels.

Real Advice For Smarties:  Aligning all channels results in two problems - the core audience is satiated, any other niche audience is alienated.  As a result, the customer file ages, rapidly, eventually separating the catalog brand from the future, enabling Amazon to capture 25% of all e-commerce transactions.

Cataloging For Dummies:  The best way to grow your business is to get your existing customers to buy more of your merchandise.

Real Advice For Smarties:  If this was true, then annual purchase frequency would increase by 10% a year, every year.  This never happens.  Your growth is almost entirely based, on a long-term basis, on new customer acquisition.  The smartest companies thoroughly understand this fact.

Cataloging For Dummies:  Wrap the cover and back cover with new content, keep the interior of your catalog the same, and remail the catalog to your best customers, you'll earn more business at minimal cost.

Real Advice For Smarties:  In a world where a customer can instantly obtain information on a hand-held phone with the computing power of a 2010 laptop, you're going to send the exact same marketing content via a mailbox six weeks later?  It's 2013.  At least afford the customer the luxury of a new creative experience.

Cataloging For Dummies:  Drive the customer online using print.

Real Advice For Smarties:  Do the opposite.  Calibrate your catalog for a 60 year old or older customer who doesn't want to go online.  Conversely, create a great online experience for customers age 40-59, and create a fantastic mobile/social experience for customers age 18-39.  Or just focus on one audience.  Do what's right.  Don't try to use one medium to force a customer to use another medium because your printer thinks that's a great way to keep the print industry alive.

Cataloging For Dummies:  All customers love catalogs.

Real Advice For Smarties:  Baby Boomers and Moms shopping for Children, they seem to appreciate catalogs.

Cataloging For Dummies:  Contribute your names to the co-ops, and reap the rewards of instant access to the names/addresses of your competition.

Real Advice For Smarties:  Diversify your portfolio of new customers, or risk the acceleration of acquiring a customer age 60 or older.

Cataloging For Dummies:  Mail all customers catalogs, you're a cataloger!

Real Advice For Smarties:  Minimize mailing of catalogs to mobile/social/search/email buyers.

Use the comments section to offer your version of Real Advice For Smarties.

Dear Catalog CEOs: Gravy

Dear Catalog CEOs:

This is called "Chicken Fried Steak", or, as your physician might call it, "a viable path to obesity".

Look at the gravy.  Heck, you can't even make out the steak, can you?  Who knows if the steak is truly chicken fried or not?

That's what we've done to the merchandise we sell.  We spent the past decade coating our merchandise in gravy.

What are examples of gravy?

• 30% Off.
• Free Shipping.
• Loyalty Programs.
• Credit Programs.
• Loyalty Programs Implemented Via Credit Programs.
• Credit Programs Implemented Via Loyalty Programs.
• Sweepstakes.
• Gifts With Purchase.
• Pins.
• Likes.
• Followers.
• Viral Videos (because, be honest, who wants to create videos that do not go viral?)
• Catalogs designed to interest you, then drive you online, where you comparison shop and ultimately buy comparable merchandise from somebody else.  Woo hoo!
• QR Codes.
• Podcasts.

So many of us are now disconnected from the merchandise we sell.  Heck, we're disconnected from the merchants we used to call "co-workers".

You are the CEO of your company.  And as time goes by, your marketing employees are gravitating more to the vendor community they have outsourced most of your marketing activities to.  They are gravitating away from the employees responsible for the merchandise you sell.  Only you can re-integrate merchants and marketers.  You won't do this by "tearing down silos".  You'll do this by forcing your marketing team to understand how merchandise productivity influences marketing productivity.

The more your marketing team understands merchandise, the less they have to dazzle themselves with credit programs, percent off sales, and sweepstakes.  Your marketing team will care less about pins/likes/followers if they learn to care about the merchandising team responsible for the success of your company.

Contact me (kevinh@minethatdata.com) for your own, customized Merchandise Forensics project.