Essays From Arthur Middleton Hughes

In my opinion, Arthur Middleton Hughes may have influenced the field of Database Marketing more than any other individual over the past twenty years. A few weeks ago, Mr. Hughes agreed to share his views on a couple of questions. Attached are a pair of essays from Mr. Hughes.

The first essay addresses how to calculate lifetime value when you, as a marketer, have incomplete information. Click here to download the document: Essay #1.

The second essay talks about customer retention. Pundits talk about how it is cheaper to retain a customer than it is to acquire a new customer. Mr. Hughes provides his thoughts on this topic. Click here to download the document: Essay #2.

My thanks to Arthur Middleton Hughes of KnowledgeBase for taking the time to discuss these topics with us!

Four Great E-Mail Observations From DMNews

DMNews sent out their Essential Guide to E-Mail Marketing last week. There are many good nuggets in this sixty-two page publication. I pulled four interesting observations for you to see.

David Daniels at Jupiter says "The majority of email marketers are tethered to the production process of getting their weekly mailings out and often do not have the time or the resources to think strategically about how to improve their mailings". This is a great observation. Changing the internal working processes can be much harder than adopting new technology.

Chris Baggott, co-founder of ExactTarget, says "Planning and creativity are required to collect and compile actionable data. Armed with a handful of well-maintained subscriber attributes, audiences can be identified and segmented, which provides creative teams with the information they need to develop appropriately targeted messages." Technology and information are accessible to creative teams. Database Marketers have a responsiblity for communicating better with creative teams. The improvement in results is likely to be better than what is observed when a geeky algorithm is implemented.

John Murphy at Rubin Response Services Inc. says "The subject line should compel the recipient to take action. The subject line is no place for branding, product announcements or listing the product benefits." The subject line represents high-priced real estate. If the objective is to sell something, use that real estate wisely.

Finally, Alan Rimm-Kaufman says "Don't evaluate your e-mail program in isolation. Taking e-mail results out of context can lead to bad decisions. For example, one national retailer adopted a strict last-marketing-contact-gets-credit-for-the-order allocation rule." I can't tell you how often I hear about this methodology. The methodology is clearly better than doing nothing. But the results obtained by using the methodology can lead to trouble.

You can download the sixty-two page document as a PDF file by clicking here.

Online Conversion Rates: What Is Average?

Last week's post on homepage design influencing net sales is easily the most popular post I have written. Though the post has generally been well received, some of you want to understand how conversion rates can be benchmarked within the "selling", "hybrid" and "branding" classifications.

So, I built a regression model to illustrate what an "average" conversion rate is for a given average order size, and monthly traffic estimate. The results of the model are outlined in this spreadsheet. Please feel free to download the spreadsheet and share it.

Let's talk about the "hybrid" portion of the table, and some of the things the model indicates. Similar conclusions can be drawn in the "selling" and "branding" tables.

• Sites with large average order sizes typically have lower conversion rates. As items become more expensive, fewer customers are likely to purchase them.
  
• Sites with above-average monthly visitor counts have lower conversion rates. Each incremental visitor is less and less likely to convert to a purchaser.

The estimates can be used as a benchmark for your business to understand, at a 30,000 foot level, how conversion rates change by average order size, average monthly traffic, and homepage creative/merchandising strategy.

Pop vs. Soda

My wife and I grew up about eighty miles from each other in Northeast Wisconsin. During the twenty-one years we've been together, she calls Diet Pepsi "Pop", while I call it "Soda". Both of us are steadfast in the proper use of the term.

I was amazed this evening when Google Reader forwarded this picture to me, courtesy of the Tasty Research blog. The map accurately depicted the preference of my county, and the county my wife grew up in. I was unaware that soft drinks are called "Coke" in the Southeast.

Jim Fulton on Gary Comer, Founder of Lands' End

Jim Fulton offers us this contribution, about his relationship with Gary Comer, founder of Lands' End. Gary passed away last week, at the age of 78.

I joined Lands' End in 1986, as a summer intern, between first and second year at business school. I had really wanted an internship at an ad agency in Chicago, but the day I got the bullet in the mail, I also received a Lands' End catalog. I had been a customer for four years and really admired everything about the company, so I thought "What the hell, I'll send a resume to Gary Comer."

The next week when I called to follow up on the letter, I was put through to Gary's assistant Mary (who was one of the sweetest people I had ever met), and introduced myself. She moved the phone away from her face and yelled 'Hey Gary, it's that kid from Northwestern." I heard a "click," and then heard "Hi Jim, this is Gary." My jaw dropped to the floor, and I started three weeks later.

I had the privilege (and I use that term in its highest meaning) to work with Gary a number of times during my years at LE, and I don't want to bore the readers with them, but in thinking back on the kind of guy Gary was -- and the culture he created -- I do want to share one little anecdote.

From the time I was an intern, I always kept a coffee mug full of chocolate (Hershey's kisses or Ghirardelli chocolate squares) on my desk, because I thought it was a nice gesture. I didn't know it at the time (but Gary's secretary told me later) but Gary apparently had this huge chocolate "thing," and he knew that I kept a stash on my desk. So I'd be sitting there, working on whatever little project newly-minted MBAs work on, my office walls filled with three dimensional graphs of customer behavior, and Gary would walk in and he'd make small talk and ask me what I was working on and he'd stand there and eat chocolate.

I was initially really flattered, thinking "wow, this guy must really be interested in my work." I think he was, but he was also satisfying his chocolate craving. After the company went public, he'd still come in and chat and I'd think "Come on Gary, you don't need to make all the small talk, you can just grab and go," but he never did -- he was always the kindest, most good-humored person in the office.

The other thing that always amazed me about Gary was his ability to remember names -- my name, my wife's name, my daughter's name.

Gary wasn't infallible of course, and there were a number of decisions that I disagreed with but there was no argument about the intensity of the culture he created and the admiration he evoked from everyone who worked with him. Rest in peace, Gary, and thanks for picking up the phone twenty years ago.

Jim Fulton

Online Sales Growth

The Business 2.0 Blog has a story on the end of growth in DVD sales. Pay attention to the chart, because that is where online sales are heading in the next 2-5 years, once the majority of catalog companies have migrated online, and the majority of direct retailers become good at search and online marketing.

Williams Sonoma Growth Rates

I ran across an interesting tidbit this evening. After reviewing Williams Sonoma annual financial results from 1991 - 2005, I calculated compound annual growth rates for two time periods. The first time period was 1991 - 1999. The second time period is 2000 - 2005. Williams Sonoma first introduced an e-commerce website in November 1999.

Here are the metrics for total direct (catalog + online) sales and retail comp store sales.

• 1991 - 1999
• Direct CAGR = 17.1% annual growth.
• Retail Comp Store Sales CAGR = 6.0% annual growth.
• 2000 - 2005
• Direct CAGR = 16.9% annual growth.
• Retail Comp Store Sales CAGR = 3.7% annual growth.

I find it fascinating that Direct growth rates are essentially the same before, and after the introduction of e-commerce. The addition of another sales channel within the Direct channel did not materially increase growth rates.

All of us in the multichannel world need to step back, and contemplate the true relationship of the catalog channel, online channel, and where applicable, a retail channel. Not all businesses will follow the Direct channel growth rates observed at Williams Sonoma. But the transformation of the catalog channel into an online channel requires considerably more study than we give it today. The issue isn't really about whether a catalog drives business to the online channel. The real issue is how customer behavior is changing, and how we, as database marketers, respond to that change in customer behavior.

Multichannel pundits tell us what we must do to be successful. They tell us we must have catalogs, we must have an online channel, and we must align all merchandise, creative, pricing, and marketing along all channels.

The real challenge is figuring out what our customers really want, not what pundits tell us what our customers really want. And once we figure that out, we must consider whether we can afford it? Williams Sonoma must have done some fancy dancing to add the infrastructure of a website, and the costs associated with it, while all along not increasing sales at a rate faster than sales were increasing when only a catalog channel existed.