Monday Mailbag

We have one question this week, and it's a good one - it comes from Charles:  Your quote from last week makes a lot of sense to me ... "The future is proprietary merchandise that customers love, sold at a fair price with amazing customer service and a compelling story, yielding healthy gross margins that enable enough profit to pay employees well and allow the business to invest in the future." But how do you get the word out? What is the optimal customer acquisition strategy for 2014/2015? Sure, every brand is different and unique, but if you were launching an outerwear brand today, how would you do it? Clean slate.

In the context of outerwear, competition is fierce. Here's The North Face, for instance:

Look at what is communicated here. We have free ground shipping, we have a cause that customers can support, we have easy navigation (including featured products below the fold).

Each of the tabs takes us to a different story.

Now let's look at the other side of the coin - Amazon.

Notice the difference in selling technique? More on that in a moment.

First, I'm going to decide who my target audience is.

• June - age 77.
• Judy - age 61.
• Jennifer - age 45.
• Jasmine - age 29.
• Jadyn - age 13.

Now that I know my audience, I'm going to decide where I stand on the pricing/fashion continuum. Am I fashion-centric, charging expensive prices with fat gross margins? Or am I battling everybody else in a race to see who is last to lose to Amazon?

Finally, I'm going to decide on my selling "style". Do I tell a story like The North Face? Or do I use Amazon's style of selling?

Of course, you can pay to get your message out there ... June / Judy / Jennifer / Jasmine / Jadyn all have channels that they prefer, so if I want to get my message out there to Jennifer, I might invest wisely in search to get my first $3,000,000 of sales in the bank. If my customer is Jasmine, I'm all over social/mobile as my way to get my first $3,000,000 in the bank. If my customer is Judy - I'm creating a catalog and I'm renting names from my competitors via co-ops like there is no tomorrow. The audience determines how I invest my money.

But most importantly, my story must be worthy of word of mouth. I know, this sounds pithy, but if I'm not doing anything that is worthy of getting customer to talk, then why I am even in business? What is the story I'm going to tell? Why would my customers share my story with their friends?

The storytelling aspect of marketing is seriously underrated. If I'm a reasonably new business, I need a story, a point of view, something that differentiates me from everybody else. Visit Mizzen and Main (click here). Do you see a point of view, a story, that differentiates them from everybody else?  This story, this point of view, is completely missing from marketing. It's the point of view that gets people to talk about you and to share your story early in your development. That's where I'd invest the majority of my time.

Ok, time for your thoughts. How would you "get the word out"?

Monday Mailbag

As is now our tradition, your questions, real and simulated, are answered every Monday. Email your question to kevinh@minethatdata.com.

Our question comes from Ruth: You are focused on catalogs too much the past two weeks. Why? And honestly, the stuff you are talking about is ten years down the road, we need help now. Why not provide us with free tactics that help us today?

• There are three reasons I'm trying to focus the majority of my audience on what matters.
• First, read this press release from Harte Hanks (click here please). Here's the important quote ... "The decline in revenue was primarily driven by a 13.6% decline in our Retail verticals due to clients making mail format changes."
• Here's the second reason - this article (click here), which outlines that jobs in the print industry have shrunk by one million (yes, one whopping million) in the past seven years. UPDATE - The DMA pulled this article down from their site the morning of 2/10/2014.
• And the third reason - this article (click here) showing that the number of catalogs mailed is down 40% in the past seven years. Yes, 40%.

Sometimes, we need overwhelming evidence before we bother to think about what is happening. What is happening is that you can mail catalogs - you'll be able to do so for decades at ever decreasing levels of circulation. More important, what is happening is that the catalog business model is ending. These are two very, very different concepts, concepts that folks have a very difficult time grasping simultaneously.

Now, I get it. There are a ton of folks out there, about 55 years old. They made it to the Executive level, and they enjoying pulling down $200,000 or $300,000 per year. They're thinking about how to get to age 62, not how to protect a business long-term. If you are in that camp, then yes, by all means, milk your quarterly results for all they are worth, you aren't an audience that thinks strategically, you aren't thinking about protecting the future for the employees you supervise. Go enjoy a healthy dose of omnichannel strategy.

There's another large faction of readership - the vendor community, consultants, and trade journalist. These folks have good intentions, no doubt. But their loyalties lie with their bottom line, not with your bottom line. Pretend you are Harte Hanks - your print-focused business plummeted by more than 13% last quarter. You look at the numbers, you know that the core of your business (print support) is dying. Strategically, you're going to attack your clients on two fronts. First, you're going to convince your clients that "print is in the mix". You'll convince your clients that catalogs are a vibrant part of an "omnichannel" strategy. You say this, of course, to keep the dollars flowing today, so that you can stay in business. Second, and more importantly, behind the scenes, you're looking for a path to the future. You are using client revenue today to fund your quest to find a path to the future. That path to the future, folks, does not include print. Go ask the co-ops who are linking social/mobile data to catalog purchases, go ask your printer who invests in iPad apps that enable catalog shopping at the swipe of a finger. These are not print-based solutions. Your vendor partners are investing the money you give them today (money earned from print-centric solutions) for future solutions that are not print-centric.

This brings me to you.

You care.

You can see the writing on the wall.

You don't believe in omnichannel nonsense (for if omnichannel worked, omnichannel businesses would be growing by 5% or 10% a year, across the board - and print-based businesses would have crushed Amazon, driving Amazon into bankruptcy). You realize that social is 0.8% of your sales total, and it isn't your fault that the percentage isn't higher. You realize that mobile is the future, that mobile will eat e-commerce, and that your customer is likely too old to embrace mobile. You realize the dilly of a pickle your business is in.

You are the person I am writing for. You might be 26 years old, you might be 62 years old, it doesn't matter.

You get it.

I'm asking you to put your business on a long-term path to success.

I'm asking you to focus on the future.

The future is proprietary merchandise that customers love, sold at a fair price with amazing customer service and a compelling story, yielding healthy gross margins that enable enough profit to pay employees well and allow the business to invest in the future.

Notice what I just said. Notice that channels are not part of that. Our focus on channels takes us away from focusing on the paragraph above. I speak with marketers who can't even identify the best selling items. Come on!!

It's going to get harder and harder to listen to your vendor partners. They have to promote an omnichannel message that includes print, because it guarantees their short-term success. You will slowly remove contacts from your strategy, you will slowly cut circulation depth, and you will slowly reduce page counts. All of this goes against the messages you will hear from your vendor partners.

I'm on your side. I'm "pro you".

If I wasn't on your side, I wouldn't sell the very methodology that allows me to make a living for just $29 (click here - Hillstrom's Contact Strategy). I'm literally giving away my way of making a living. Do your vendor partners do that?

If I wasn't on your side, I wouldn't sell the very methodology that allows me to identify why a business is struggling (click here - Hillstrom's Merchandise Forensics). Do your vendors give away all their secrets for $11.95, or do they keep finding ways to force you to mail expensive catalogs?

This is the end of my two-week catalog rant. I hope you give some thought to the future of your business. The catalog business model is coming to an end, even though you'll be able to mail catalogs (at ever-decreasing levels of circulation) for another one or two decades. The sooner we accept our reality, the sooner we get down to the basics of building a sustainable, healthy business for the long term.

Monday Mailbag

Email me your questions (kevinh@minethatdata.com).

We have one question this week - it comes from Alan:  "What is going on with catalogs, Kevin? The information is all over the board. Lois Brayfield says catalogs work (click here). You have a very different point of view. Who is right?"

• Alan, in 2014, everybody is right. Everybody. Lois is most certainly right. So am I.
• On the one hand, if you are aligned with an organization like "Catalog University" (click here), you have no choice but to support a thesis that advocates a healthy catalog industry. Be honest - how could the good folks who support that organization do anything but recommend that catalog marketing is alive and well? And if you ask the folks at Catalog University, they'll produce dozens of case studies of success - and they are right. They are right.
• On the other hand, you have two facts that cannot be denied. First, the mailing industry has lost 1,000,000 jobs in seven years. This cannot be the fault of the economy - e-commerce grew 10% per year (or more) in each year of that time frame. The second fact is that the raw number of catalogs mailed is down 40% from seven years ago. 40%! The decision to cut that much circulation out of the mail stream was not done carelessly, it was done because all that paper was highly unprofitable.

Take a Chasing Fireflies - born nine years ago, sold to HSN for tens of millions of dollars. That business was built by catalogs, plain and simple. Catalogs work.

I consult with numerous catalog businesses that cater to Judy (61 year old customer). Many of these businesses are healthy. Catalogs work, when targeted to Judy.

And yet, the 30,000 foot trend is undeniable, and cannot be avoided. At a 30,000 foot level, we all know where catalog marketing will eventually land.

For whatever the reason, we are unable to hold two inconsistent factors in our head at the same time? Why is that? In 2014, there are businesses that use catalogs in a highly successful manner. And in 2014, we can see that customers age 45 or younger are never going to embrace catalogs - why would they, when they rent every piece of information ever created, on a mobile device, for $80 a month? I don't need a catalog when I can visit Forever 21 on my phone at any time, at any place.

In 2014, catalogs are highly successful marketing tools for customers age 55+. And in 2014, it is obvious that the long-term future of catalogs couldn't be bleaker.

We can hold two opposite thoughts in our head at the same time. This isn't an either/or proposition.

We should also consider the three problems that are creating great pain in catalog marketing.

1. Amazon.
2. Retail Discounting.
3. Demographics.

Thoughts?

Monday Mailbag

It's time for our new Monday tradition - real and imagined questions from real and imagined readers. Send me your questions (kevinh@minethatdata.com) and I'll answer them!

Our first question comes from Cynthia: "How do I take care of customers who return a lot of merchandise? Can I convince these customers to stop returning merchandise?"

• Maybe.
• Some items are pre-destined to have systemic returns issues, while other items will seldom be returned, if ever. Use the Merchandise Forensics framework to identify high-returns items, and work with your merchandising team to understand if high-returns items are still profitable.
• Just as interesting, however, is how we manage high-returns customers. Once customers get in the habit of returning merchandise, customers will continue to return merchandise. This greatly lowers overall profitability. You can minimize how these customers ruin profitability by not emailing them. Seriously. Stop emailing these customers. Stop mailing catalogs to these customers. Stop retargeting to these customers. Just stop. There are millions of dollars of profit to be had (for larger-sized businesses) by not marketing to high-returns customers.

Our second question comes from Andy: "I work for a large brand. Our CFO told us that our social media efforts are meaningless - she said this in a large meeting, in front of my co-workers. My CFO is wrong. How do I prove she is wrong?"

• This doesn't have to be a long, complicated, difficult analysis, Andy.
• Social media, for 97% of the companies I work with, contributes +/- 1% of total volume, on an annual basis. To your CFO, that sounds like a tiny number, no doubt.
• Let's say that you work for a billion dollar, mall-based retail brand. 1% of a billion dollars is a whopping $10,000,000 of annual sales. 
• Sit down with your CFO, and ask your CFO to tell you how much of annual net sales flows-through to profit. For most businesses, this percentage is somewhere between 20% and 50% - I find that the average is +/- 40% for most businesses, depending on what the business sells. If it is 40%, then calculate 40% of the annual sales total generated by social media ... 40% of $10,000,000 is $4,000,000 profit.
• Do you think your CFO will ignore $4,000,000 of annual profit?
• Stop communicating via "engagement". Communicate using metrics that resonate with Senior Management. Profit resonates with Senior Management.

Our final question comes from Larry: "My email vendor told me to mail fewer emails to customers who don't care about email marketing. My CFO told me that my email vendor is crazy, and should be fired. Who is right?"

• In most cases, your email vendor is right.
• I never would have answered that way, until I worked on catalog + email contact strategy projects that proved that the email vendor is "right".
• Tomorrow, I will demonstrate why your email vendor is right, in a separate blog post.

Monday Mailbag

Remember, each Monday in 2014 I answer your questions, both real and imagined. If you have a question, please send it to me (kevinh@minethatdata.com).

Our first question is from Tracy: "What do you think about the Target and Neiman Marcus credit card theft situations?"

• First, that stuff is going to happen. But it should happen less often.
• Second, and much more importantly, we've completely lost focus on what matters. We'll happily spend hundreds of millions of dollars on #omnichannel solutions that will be implemented over a half-decade (click here), but we don't invest the same organizational zeal protecting credit information? We have everything backwards. If we can't protect credit card information, we don't have a business. Instead, we're focusing on how to make up for inventory errors in one story by wiring systems so we can ship items from other stores. Protect customer information first!
• Third, we have information technology folks who are frequently paid more within the same job grades than garden variety employees - these folks need to do a better job of protecting information, and they need to say NO when marketing folks or consultants want them to prioritize big data nonsense over customer protection. And my goodness, try being an IT professional at a major "brand". Not enough resources, not enough respect, and everybody telling you what you must do. Not easy to protect customer information. We'll need to re-allocate resources to do a better job.

Our second question comes from Jessica: "What impact does company culture play in merchandising success?"

• It means pretty much everything!
• When I worked at Lands' End, more than twenty years ago, marketing folks were invited to inventory/merchandise/creative reviews. All data was shared. Here, in 2014, I seldom attend a meeting where a marketing person can clearly articulate merchandising success.
• At Eddie Bauer, sixteen years ago, the culture adored process. Process! Few cared how merchandise performed. Everybody cared that the inventory team would get the marketing forecast on Friday, January 10, for the fall season. Not surprisingly, the business lost 20% of merchandise productivity during my time there, ending in early 2000. Also, not surprisingly, the business had a lust for discounts / promotions to move merchandise. You've never seen marketers so passionate about getting the right offer to the right customer at the right time. This logic, of course, is backwards, but that's what happens when the focus strays from merchandise, as it did fifteen years ago at Eddie Bauer.
• Nordstrom was all about customer service, which, interestingly, results in a lot of merchandise knowledge. The organization didn't have the merchandising passion that Lands' End had, but customer service passion required employees to please customers, and you please customers by selling them something they want, and customers want merchandise.
• In other words, if the company culture cares about customers or merchandise, then you tend to see better-than-average merchandise productivity.

The final question comes from Roger: "Why are you so against omnichannel? It's the painfully obvious future. Would you rather see retail businesses close their doors?"

• Give this a read, Roger (click here). Nook sales were down 60%, year-over-year, in Q4-2013. Barnes and Noble did everything the omnichannel advocates demanded. They invested in the online channel, they have the stores that omnichannel advocates demand, and they had the Nook to protect their digital future. Shouldn't all of that, then, lead to riches? Wouldn't stores, online, and digital tablets trump Amazon?
• It turns out that Amazon has a merchandise plus pricing plus assortment advantage that trumps an obvious omnichannel solution.
• Here's another question - if omnichannel is destined for greatness, then wouldn't Microsoft, with in-store / e-commerce / mobile / tablets / integrated operating system across devices easily trump any other alternative?

Monday Mailbag

Welcome to the third week of the "Monday Mailbag", featuring real and simulated questions from real and simulated readers. Email me (kevinh@minethatdata.com) with your questions.

Question #1 comes to us from "Anonymous":  We all sell merchandise, and we all care about merchandise. What do you want us to do, above and beyond what we're already doing, to care more about merchandise?

• Read this article about J. Crew (click here).
• Find one person at your company (this person already exists) who cares this much.
• Give him/her a chance to succeed.

Question #2 is from Chris: Don't you think that people like you are ruining society? You track and measure everything that customers are doing. You are like the NSA, aren't you?

• I've been through four stages of customer tracking.
• Stage 1 = Catalogers rented names from competitors, and traded names with competitors.
• Stage 2 = Catalogers gave customer data to co-ops, for free, then paid $0.06 a pop for re-assembled data.
• Stage 3 = E-commerce terrified customers, so businesses kept information "private" and "secure", which caused measurement folks to use cookies to track customers anonymously, which caused measurement folks to not like anonymous behavior, which caused measurement folks to find clever ways to link name/address and email address to a cookie, so that all data could be tracked all the time while telling the customer that their behavior was "private" and "secure".
• Stage 4 = Mobile. Want to download a chess game app? Congrats! The app wants to know where you are at all times - it wants to know your location. Why does a chess game need to know your location? Think about it. Mobile isn't mobile, mobile is data collection with context. The data is fed into a giant borg, where it is sliced and diced and re-sold. As I've mentioned previously, I met with the CEO of a mobile company - this individual told me that he didn't care about the product he was selling, he cared about the data generated by the product. Think about that sentence for a moment.
• Stage 5 is coming - wearable devices and the "internet of things".
• Ultimately, all of us are, in some way, like the NSA. We collect data about our friends (Facebook), we collect data about our favorite media companies (Twitter), and we use that data to monitor what our friends and our media outlets are doing. The path, from Stage 1 to State 4, is becoming more intrusive, and will continue to become more intrusive. Stage 9 looks really terrifying.

Monday Mailbag

It's our new Monday tradition here ... your questions answered, and where appropriate, some simulated questions to make a point! Email your questions to kevinh@minethatdata.com.

An Anonymous CEO asks this: "What happens if I shut down my catalog, and focus instead on selling on Amazon instead? Can I grow my business faster?"

• #OhBoy!
• No right or wrong answer here.
• Audiences, however, are very different. The catalog audience is 55+, and rural. The Amazon audience (though age 18-80) averages a decade younger. So the merchandise assortment that works with catalogers may or may not work so well with the customer attracted to Amazon.
• Why not create a separate brand that sells on Amazon, and see what happens? It can be the same merchandise, right?

Seth has a question for us: "You are constantly preaching about profit. Doesn't your stance on Merchandise Forensics contradict profit? You want us to invest in creating more new items, new items that are terribly risky. Wouldn't we be better off riding our winners as much as we possibly can?"

• Interesting! Have you had a chance to read this article about the movie industry (click here). Fewer and fewer movies ... more and more profit. Every industry has a magical "inflection point". Every company has a magical "inflection point". Go too far, and you're over-assorted, and that's expensive. Cut back too far, and you starve your customer base. We're constantly trying to find that magical inflection point. It's always moving. And it can be found. That's the point of Merchandise Forensics.

Sherri asks, "Why do you think marketing professionals should even bother with understanding merchandising? Don't we have enough to figure out with mobile and social and online marketing?"

• I worked with an individual. An accountant. This person learned catalog circulation. Then she parlayed circulation knowledge into meetings with the inventory team, which became meetings with the merchants. With marketing data, she told the merchants what worked, and what didn't work, from a customer standpoint. This earned her a job as General Manager of a merchandise category. Several jobs later, this person was in charge of Creative and Merchandising. This person founded a company. A half-decade later, the person sold the company. The pivot from marketing to merchandising launched a career. And most of the upper-level Execs I work with respect merchandising brilliance more than marketing brilliance. Merchandising knowledge is awfully, awfully important. And it has a disproportionate influence on profitability.

And finally, William asks, "I think it's wrong to ask catalogers to shift to a younger audience. First of all, it won't work, younger customers hate catalogs. Second of all, what's wrong with generating profit from Baby Boomers?"

• Here's what I know. When I analyze the age distribution of catalog shoppers, across time, I see a rapid and frightening aging of the customer base. In 2000, the customer was maybe 50 years old. In 2014, the customer is 61 years old. I repeatedly observe 0.7 years of additional age for every year that passes - and it's been this way for at least a decade.
• I don't need to be a visionary forecasting wizard to project what the customer file looks like in the year 2028 ... it's probably 72 years old ... the average customer, mind you, would be 72 years old.
• We need to turn this question around ... what is your solution? How do you prevent your catalog-centric business from becoming Montgomery Wards?
• Give this article about Marriott a read - they're dealing with the same issue you're dealing with (click here). What would your solution be to their problem? How does that relate to your problem?

Monday Mailbag

In 2014, I'm beginning a new feature, offering answers to real and imagined questions. Email me (kevinh@minethatdata.com) your questions, and I'll feature them in this weekly series.

We'll get things started this week with questions from Twitter.

Our first question is from Jason: "Why do you have contempt for social media, and in particular, engagement? What could possibly be wrong with creating interest for the brand, for free?"

• I have contempt for wasting company resources. Think of it this way. You pay $4,000,000 dollars a year on paid search. For that, you get 8,000,000 clicks (that's a lot of clicks), and a whopping 12,000 orders, at $100 each, netting $12,000,000 in sales, and at a 40% profit factor, $800,000 profit. Tell me what you get for "x" points of engagement? You create great content, and 22,000 fans spread the word. Ok, that's good. And those 22,000 mentions get re-tweeted 10,000 times, so that counts for even more engagement. Fine. Now tell me what I get? The paid search employee is being paid $70,000 a year to generate $800,000 profit. The social media engagement expert is being paid $70,000 a year to generate 1,243,083 engagement points. That's what is wrong, folks!
• Let's pretend you work for a major retailer ... a billion in annual sales. Let's say your attribution expert can only find 0.2% of sales that are attributed back to social media. That's puny, sure, but it's relevant. Why? Because $1,000,000,000 * 0.002 = $2,000,000 annual sales, and at a 40% profit factor ... it's $800,000 profit. Oh oh! The social media engagement expert actually contributed, and in a major way - the amount of profit is identical to that generated by the paid search expert. Now that's ok, isn't it?
• So, yes, I get terribly frustrated with lazy work. I have respect for hard work. And when you do the math, for a major retailer, social media pays off. Just do the hard work, folks.

Our second question comes from Kyle: "Kevin, what is the best promotion to offer a customer, free shipping or a percentage off your order?"

• Obviously, you test the tactic that generates the most profit for your business.
• Here's a more important question - why must you offer a promotion to get customers to purchase your merchandise? Why don't customers love what you sell? Why won't a customer pay full price? Customers pay full price for iPads, don't they?

Our third question comes from Tyler: "Kevin, why are you so pessimistic about the future of cataloging? So what if the USPS raises rates? The catalog industry has survived an endless litany of postage increases over the decades. Why so pessimistic when our core customer loves catalogs?"

• The key phrase in the question is "core customer".
• Our problem is less a USPS problem than a problem of demographics. The core customer is aging so fast that it is terribly frustrating to me. Terribly frustrating. Those of you who read this blog send emails to me, telling me that Abacus says your core customer is 61 years old. Oh my goodness. It wasn't always like that. All the data I look at tells me that the customer spends 2% to 5% less per year as the customer gets older ... so if the USPS increases postage down the road by, say, 10%, then the actual cost of a mailed catalog goes up by 4% (+/-). So you have a 4% productivity hit, and a 4% cost increase, requiring you to find an 8% merchandise productivity increase to offset demographics and cost increases. And you'll need these merchandise productivity increases, in perpetuity. 
• That's impossible.
• We can face this problem head-on, or those of us in our mid fifties or older can try to survive until retirement. My fear is that the latter is happening, with younger staffers leaving in droves, going to work in Jennifer/Jasmine-centric businesses. Where does that leave a classic catalog business?
• That's why I am pessimistic.

Our final question comes from Heather: "What do you think of iBeacon or other in-store tracking devices?"

• This is what I think: