Struggling Business Models

Sour business results are on the minds of the executives I speak with. And we're talking sour business, folks.

Let's review some of the issues.

At the end of 2006, many businesses were plodding along, generating profit.

Business Results: End Of 2006
		Ph/Mail	Cat/Web	Web Mkt	WebOrg	Totals
Demand		$20.0	$14.0	$8.0	$5.0	$47.0
Net Sales	80.0%	$16.0	$11.2	$6.4	$4.0	$37.6
Gross Margin	55.0%	$8.8	$6.2	$3.5	$2.2	$20.7
Less Marketing Cost		$3.2	$2.2	$0.8	$0.0	$6.2
Less Pick/Pack/Ship	11.5%	$1.8	$1.3	$0.7	$0.5	$4.3
Variable Operating Profit		$3.8	$2.6	$2.0	$1.7	$10.1
Less General/Admin.						$8.0
Earnings Before Taxes						$2.1
EBT as a % of Net Sales						5.6%

Basically, there are four components to any catalog business. There's demand captured over the phone/mail, generated by catalogs. There's demand captured online, generated by catalogs. There's online demand generated by online marketing and e-mail marketing. And finally, there's demand generated online that is organic, not attributed to any marketing strategy.

So, this business has, at best, average health. Then the postage increase happens. Now look at the profit and loss statement.

Business Results: Impact Of Postage Increase
		Ph/Mail	Cat/Web	Web Mkt	Web Org	Totals
Demand		$20.0	$14.0	$8.0	$5.0	$47.0
Net Sales	80.0%	$16.0	$11.2	$6.4	$4.0	$37.6
Gross Margin	55.0%	$8.8	$6.2	$3.5	$2.2	$20.7
Less Marketing Cost		$3.7	$2.6	$0.8	$0.0	$7.1
Less Pick/Pack/Ship	11.5%	$1.8	$1.3	$0.7	$0.5	$4.3
Variable Operating Profit		$3.3	$2.3	$2.0	$1.7	$9.3
Less General/Admin.						$8.0
Earnings Before Taxes						$1.3
EBT as a % of Net Sales						3.5%

Here, the USPS takes a nice, big, $800,000 chunk of profit from the business. It hurts, bad. But the business is still profitable, though marginally healthy.

All it takes to knock this business down is a slight drop in productivity. Let's assume the decrease in productivity is 10%, similar to what a lot of folks are seeing. Now look at the profit and loss statement.

Business Results: Postage + 10% Drop In Productivity
		Ph/Mail	Cat/Web	Web Mkt	WebOrg	Totals
Demand		$18.0	$12.6	$7.2	$4.5	$42.3
Net Sales	80.0%	$14.4	$10.1	$5.8	$3.6	$33.8
Gross Margin	55.0%	$7.9	$5.5	$3.2	$2.0	$18.6
Less Marketing Cost		$3.7	$2.6	$0.7	$0.0	$7.0
Less Pick/Pack/Ship	11.5%	$1.7	$1.2	$0.7	$0.4	$3.9
Variable Operating Profit		$2.6	$1.8	$1.8	$1.6	$7.7
Less General/Admin.						$8.0
Earnings Before Taxes						($0.3)
EBT as a % of Net Sales						-0.8%

Ok, you can see the double whammy caused by the postage increase and our floundering economy.

This causes the executive team to fret. A natural reaction is to cut circulation. So, circulation is cut by 30%, almost entirely in the customer acquisition segment of the business. Here's the way the profit and loss statement looks:

Business Results: Postage - 10% Productivity - 30% Circ Cut
		Ph/Mail	Cat/Web	Web Mkt	Web Org	Totals
Demand		$15.3	$10.7	$7.2	$4.5	$37.7
Net Sales	80.0%	$12.2	$8.6	$5.8	$3.6	$30.2
Gross Margin	55.0%	$6.7	$4.7	$3.2	$2.0	$16.6
Less Marketing Cost		$2.6	$1.8	$0.7	$0.0	$5.1
Less Pick/Pack/Ship	11.5%	$1.4	$1.0	$0.7	$0.4	$3.5
Variable Operating Profit		$2.7	$1.9	$1.8	$1.6	$8.0
Less General/Admin.						$8.0
Earnings Before Taxes						$0.0
EBT as a % of Net Sales						0.1%

Nobody is cheering. We chop circulation by 30%, crippling the catalog-side of the business. The online segment of the business stays afloat, resulting in a 10% drop in sales. The business is now at break-even.

Of course, break-even doesn't work, does it? So the executive team cut out a half-million in salaries, bonuses and health care costs. Layoff happen, tears are shed. How does the profit and loss statement look?

Business Results: Postage - 10% Productivity - 30% Circ Cut - Layoffs
		Ph/Mail	Cat/Web	Web Mkt	Web Org	Totals
Demand		$15.3	$10.7	$7.2	$4.5	$37.7
Net Sales	80.0%	$12.2	$8.6	$5.8	$3.6	$30.2
Gross Margin	55.0%	$6.7	$4.7	$3.2	$2.0	$16.6
Less Marketing Cost		$2.6	$1.8	$0.7	$0.0	$5.1
Less Pick/Pack/Ship	11.5%	$1.4	$1.0	$0.7	$0.4	$3.5
Variable Operating Profit		$2.7	$1.9	$1.8	$1.6	$8.0
Less General/Admin.						$7.5
Earnings Before Taxes						$0.5
EBT as a % of Net Sales						1.7%

And there you have it.

This is a business that can continue during 2008, assuming that productivity does not improve, assuming no dramatic increase in postage.

This theme is being repeated across the multichannel industry. Multichannel brands with catalog and retail channels are dying right now.

In each profit and loss statement, notice the web/org column, representing organic web demand, demand not attributed to any marketing activity. This is demand that is not subject to the whims of the USPS, or to inflationary keyword challenges. It's simply demand that happens because customers love your brand.

While this sounds overly simplistic, we multichannel marketers must focus on organic web demand in 2008. Natural search is a must. Anything that generates word of mouth is a must. We must either improve merchandise productivity (really hard to do in a down economy, but possible), or figure out how to get business without marketing expense. The multichannel marketer must focus on the latter.

Career Opportunities And Perceived Value

Tell me the last time you observed these titles at a business-to-consumer organization (non-vendors):

• Vice President of E-Mail Marketing.
• Sr. Director of Web Analytics.
• General Manager of Business Intelligence.
• SVP of Catalog Circulation.
  

It's interesting that many businesses have an executive in charge of information or technology (CIO or CTO). Many businesses also have pay scales that are very favorable to information technology employees. In other words, an e-mail manager might earn a base salary of $75,000 per year, while a comparably skilled information technology individual might earn $90,000 per year. The information technology individual might have a limited career path, but at least she gets compensated for the unique skill set she offers to her company.

Which brings us to the typical e-mail, catalog circulation, web analytics, SAS/SPSS programmer, data miner, or business intelligence individual.

What is the career path for the web analytics individual using software that doesn't even capture 100% of online sales?

What is the career path for an e-mail manager that is given no budget, but is criticized for generating only $0.09 per e-mail delivered?

What is the career path for the SAS programmer who provides the intelligence that an information technology individual cannot provide, yet is considered a "computer geek" by Sr. Management?

What is the career path for a catalog circulation manager that is criticized by eco-friendly organizations for cramming unsolicited junk mail down the throats of helpless consumers?

In my opinion, there is one common theme across each of the four jobs I described ... perceived value.

The e-mail marketer is a spammer. The web analytics individual measures only one channel, and cannot frequently tie out net sales to finance-based reality. The SAS programmer is a computer geek. The catalog manager is always wrong, why would you mail a catalog that 98% of the people hate, can't you only mail the catalog to customers who will purchase?

Remove the information technology expert from your business, and your order entry system might stop taking orders. That's what "perceived value" is all about.

Stop sending e-mail campaigns, stop sending junk mail, stop creating a report that requires a complex merge of e-mail address and multiple mailing addresses, stop showing that conversion rates are flat, and who cares?

Career opportunities are often based on the perceived value of the individual. I know this is true, I've experienced it. I've been told by leadership that I'm not qualified to do any other job than an analytics-based job.

Conversely, merchants, those who choose product, are perceived to have high value, perceived to be able to lead finance individuals or marketers or information technology experts or call center leadership.

So many of my loyal subscribers are e-mail marketers, catalog circulation experts, web analytics professionals, or business intelligence / data mining wizards. Collectively, we have two problems.

• We have low perceived value.
• We do a terrible job of marketing our skills.

Not surprisingly, these two issues are interrelated.

There are three types of employees in the multichannel world.

• Employees with scarce skills, like the folks in information technology.
• Employees with leadership potential or those with the ability to "move the needle" on sales. Think CMOs and merchandising executives, as examples ... especially CMOs, folks who either drive a big increase in sales, or are kicked-out within two years.
  
• The rest of us.

In order to reap the benefits of career opportunities, "the rest of us" must market ourselves as indispensable individuals. Either we cannot be easily replaced, or we provide such significant value (sales, profit, leadership, consumer insights) to the business that we cannot be ignored, or we must market our value to the rest of the organization to increase our perceived value. Otherwise, we must be at peace with our lot in life.

At this point in time, few promotional opportunities exist within multichannel brands for my readers, causing my readers to switch jobs across brands, or to venture to the vendor side of the equation to find opportunities. It might be time for us to start marketing our abilities, to begin increasing our perceived value, or to actually prove that we are highly valuable.

Centralized Marketing Department, Integrated Multichannel Marketing Strategy: Does It Work?

One of the basic tenants of Multichannel Marketing is to avoid silo-based marketing departments, opting instead for a centralized marketing org structure.

The theory is that by integrating marketing across all channels, a centralized team provides customers with a seamless experience, regardless where the customer chooses to shop.

So here's a question for the vendor community that reads this blog. Have you observed a company where, after centralizing the marketing department, the company observed an increase in existing customer retention rates, and/or spend per retained customer, measured on an annual basis?

If the theory of a centralized marketing department and integrated marketing communications is valid, we should see metrics that look something like this:

Customer Performance By Marketing Strategy
	HHs	Rebuy	$/Rebuy	Net Sales
This Year: Centralized/Integrated	100,000	55.0%	$275.00	$151.25
Last Year: Silo Based Strategy	95,000	50.0%	$255.00	$127.50

Vendors --- use the comments section of this post to share examples where there is genuine improvement, as measured by increases in annual repurchase rate, and spend per repurchaser.

Multichannel Forensics Interview Hosted By Alan Rimm-Kaufman

Alan Rimm-Kaufman, blogger, guru, and leader of the Rimm-Kaufman Group, was kind enough to interview me on the topic of Multichannel Forensics.

Here is a link to the Multichannel Forensics interview, and here is a link to the Multichannel Forensics podcast.

If you are in Boston this week, you can hear Alan speak at the NEMOA Conference.

My Keynote Address At The Catalog Conference

If I were invited to give the keynote address at the Catalog Conference, now called the ACCM, you would hear a presentation that sounded something like this:

Good morning, everybody! Thank you for inviting me to share my views on the multichannel marketing industry with you.

Let's start the discussion with a show of hands. How many of you enjoyed receiving the old Sears catalog, or J.C. Penney catalog, back in the 1970s and 1980s?

Me too. My Mom shared the J.C. Penney catalog with my siblings. I'd thumb through the catalog, looking for a computerized chess game. Somewhere around page 594, I'd find the game. I'd ask my parents to give this game to me as a Christmas gift.

Even though we had a J.C. Penney store in my home town, the catalog represented "the store" to me. I felt lucky to receive a catalog, as if I were part of a secret club of people that got access to unique merchandise, delivered to my home within four to six weeks. I mean, where else was I going to find a computerized chess game in 1980?

My love for computerized games continued into the 1990s. I purchased a computerized backgammon game from J&R Music World in 1993. Of course, the world changed over the twelve years that passed. The J&R Music World catalog was a lot smaller, with a "targeted" merchandise assortment. This targeted catalog merchandise strategy drove the "big book" strategy of Sears and Montgomery Wards into history.

What would you do today if you wanted to purchase a computerized chess game? Google? The world is changing, isn't it?

1993 might have represented the final "Golden Age" of catalog marketing. Computers allowed professionals to practice database marketing, a craft where customers were matched-up with targeted merchandise offerings, greatly increasing the productivity of each page circulated. Catalog marketers enjoyed a near monopoly over the customer mailbox.

We decided how many catalogs the customer would receive. We rented names from other catalog brands, we exchanged names with our closest competitors. Would Zappos give away their most precious asset, their customer file, to competing online shoe brands in exchange for access to the names and addresses of customers shopping from the competition?

We practiced this strategy, in fact, we built our industry on the basis of this strategy. This whole thing called "the catalog conference" was a convenient excuse for all of us to get together to talk about our practices in renting and exchanging outside lists. We'd have sixteen of us representing two companies and four vendors in a cramped hotel room, sitting on beds and folding chairs, talking about exchange balances. And at the end of the day, Direct Tech hosted a killer party. All of that on the shoulders of the profit generated by the customers we shared with each other.

We controlled everything, the customer had almost no control. If we wanted to get a Lands' End catalog in the hands of a customer, we figured out how to do that. And as long as one or two percent of the customers cared enough to purchase from this intrusion, we could continue practicing our craft.

We didn't realize it, but we enjoyed a unique moment in time. Collectively, we identified a universe of maybe 20,000,000 households who were willing to shop via distance. The big companies did the hard work, the smaller catalog startups leveraged all that hard work to grow themselves while adding incremental names to the pool. Ultimately, we all shared the same 20,000,000 households. We thought we were independent brands competing against each other. Instead, we were a loose federation of collaborators, working together for the benefit of all of us.

Today, Google manages the households that matter.

While many prior generations made catalog marketing possible, it was the Baby Boomer generation who injected steroids into the concept. Baby Boomers managed the businesses, Baby Boomers got the catalogs into our mailboxes, and Baby Boomers purchased from these businesses.

Life was good.

And then this thing called the "internet" appeared.

At first, the internet was this funky thing we played with on a 9,600 baud rate modem. We could send and receive e-mail, we could visit static web pages.

I worked at Eddie Bauer in 1996. Our website, http://www.ebauer.com, was in the embryonic stages of development. My Vice President would stop by the office of our online marketing analyst, and rib him about whether we hit our forecast of seven orders for the day.

Nobody mocked the online marketing analyst in 1999, when fifteen percent of direct-to-consumer orders at Eddie Bauer came through the internet. Still, catalogers felt that online marketers were "cannibalizing" the catalog business. "If the catalog didn't exist, you wouldn't have a business" was a statement you frequently heard. The internet staff benefited by having an existing order-entry system, an existing call center, an existing distribution center, catalogs that drove website orders, and existing in-house systems to manage the business.

For the next eight years, a battle ensued over who truly generated sales and profit. The battle appeared to be meaningful. In reality, we made a mistake. We took our eyes off of the customer for a decade, spending our time arguing whether old-school marketing methods still worked or not.

Instead of learning how customer behavior was changing, we focused on attributing orders back to the paper that theoretically drove the order. Our industry invented a term, called "multichannel", to define the relationship between advertising, customers, and channels. We focused on the attribution side of the term "multichannel", instead of the ramifications of multichannel customer behavior.

During the decade of multichannel attribution illustrated via matchback algorithms, we lost our customer. The Baby Boomer responsible for the rampant growth of the catalog industry in the 1980s and 1990s aged. This customer is slowly being replaced with Gen-X individuals, customers who have different needs and different shopping patterns. This generation uses technology in a different way than do Baby Boomers. Even more profound are the differences in customer behavior among Gen-Y, the children of Baby Boomers. If Gen-X embraced e-commerce, then Gen-Y embraces social networking.

Both generations view the catalog in a different light than do the Baby Boomer generation. A Baby Boomer might read a catalog at night, ordering online after thumbing through the wares of a leading catalog brand. A Gen-Xer might use the catalog for inspiration, or might throw the catalog away, opting for the assistance of Google, searching for whatever pleases the customer. A Gen-Y consumer might purchase merchandise on the basis of a good review from a peer on Facebook. Of course, these are gross over-generalizations, meant to inspire thought.

The cataloger ultimately markets to the Baby Boomer generation, noticing that customer acquisition becomes more challenging as the Baby Boomer moves out of her prime shopping years.

Two other issues are shaping customer behavior. In the past decade, customers took control of the telephone via the "do-not-call" list. Customers are taking control of the e-mail in-box via spam filters and e-mail opt-in practices. In the next five years, customers will take control of the mailbox. Catalog Choice simply represents the embryonic stage of this movement. Eventually, our customer will tell us how often we get to market to her via catalogs, if at all. We are not prepared for this fundamental shift in customer behavior. All throughout history, we determined when the customer received something from us. In the future, the customer will determine when she receives something from us, if at all.

The final issue that is transforming cataloging is storytelling. Catalogs have always been about telling stories. Think about the fanciful tales told in the old J. Peterman catalog. When a cataloger has control over the customer relationship, the cataloger is able to tell the story that the cataloger wants to communicate.

A combination of e-commerce, e-mail, and search marketing ruined the ability of the cataloger to tell a cohesive story. When a customer goes to your website, you have no control over what the customer does. She can arrive via the home page, she can arrive via a landing page. She can use the search function of your site to shop. She can simultaneously use Google to compare prices on a similar item across multiple brands. The cataloger is no longer the primary factor in a purchase relationship with a customer. The cataloger is a spoke on a giant ecosystem-based tire.

This hurts the cataloger in many ways. Stories are like a moat that protects a catalog brand, causing the customer to cross-shop other items. When the customer makes up her own story, a "mashup" of other brands found via search, marketing, and word-of-mouth, she realizes that the cataloger may not offer the lowest cost, the fastest or most inexpensive shipping, or the best quality.

The same forces damage the merchandising strategy of the cataloger. Any brand can see what the cataloger offers, copy/improve it, source it in China for a lower cost-per-unit, offer free shipping, and outperform the cataloger in paid or natural search, stealing business from the cataloger. The online ecosystem ultimately drives our merchandising strategy. If one item achieves good standing in natural search, while another item fails to make an impact, then technology is driving the performance of items offered. Regardless, our catalogs and the cohesive stories told in our catalogs are not as relevant in the future unless the internet/Google decides that we are relevant. We will be forced out of business by low-cost competition, or we will achieve success by offering high-gross-margin niche product that Google determines is highly relevant in the niche it participates in.

What is also interesting is the fact that by avoiding these challenges, the cataloger indirectly moves the customer base older and older. Numerous CEOs confided in me that the average age of the customer purchasing from catalogs is advancing at twice the rate of time. In other words, an average customer of 50 years old in 2003 is now an average customer of 60 years old in 2008. This is an odd side-effect of technology. By avoiding the dynamics that are shaping the internet, the cataloger partners with co-ops to find customers most likely to respond to catalog marketing. The audience that remains loyal to catalog marketing is the audience least likely to embrace technology. Co-op technology helps in the short-term, but has the potential to move the catalog brand toward a customer base that is unsustainable.

By now, what should be clear to you is that the catalog business model we managed in 1993 no longer exists. The competitive advantages we enjoyed fifteen years ago are gone. This doesn't mean we can't be successful. We can be very successful. However, we will have to apply modern technology, a thorough understanding of customer behavior, and an absolute attention to detail across all online marketing strategies.

The cataloger of the future will gracefully manage catalog mailings, providing twenty contacts a year for the customer who wants twenty contacts a year, a universe that will continue to decrease in quantity. Over time, the majority of customers will demand that they determine how many catalogs they want to receive, if any. This will end the practice of using lists and co-ops to manage customer acquisition. New customer acquisition will happen online. This concept is a terrifying one for catalogers, one that cannot be avoided.

The cataloger of the future will reduce catalog advertising expense, but won't pocket the savings. Instead, the money will be reinvested in faster delivery options at a lower cost. Customers will demand that all direct-to-consumer brands follow the lead of Zappos.

The cataloger of the future will be required to become very, very savvy at online marketing. I'm not talking about executing paid search campaigns. I'm talking about every aspect of online marketing, paid search, natural search, affiliates, shopping comparison marketing, portal advertising and pay-per-click, social networking, and techniques we cannot envision today. Countless brands never mail a single catalog, yet run profitable direct-to-consumer businesses using these techniques. Do a search for any product and see what I mean.

The cataloger of the future will manage a heterogeneous customer base, one resistant to mass-mailings of catalogs or e-mail blasts. This will require an attention to detail in online marketing expertise that does not exist today.

Vendors who rely upon the catalog ecosystem will need to adapt as well.

The biggest potential winner is the traditional list organization, somebody like Millard or ALC. The future of cataloging won't be in renting or exchanging lists. The future could be in identifying groups of individuals with common interests. We might work with Millard to build/find a group on Facebook that likes mens tools or rugs or scrapbooking, whatever is relevant to our business model. The traditional list organization competes against algorithm-based organizations like Abacus by
adding the "human" element --- linking people who have interests together for the betterment of people, not brands. Catalog brands succeed as a side-benefit. For those brands who want catalog-focused customers, co-ops will be there to serve them.

If I were to poll the folks in this room about the biggest issues in cataloging in 2008, three themes would emerge.

1. The crippling effects of the 2007 USPS postage increase.
2. The recession of 2008.
3. The approach Catalog Choice uses to encourage catalogers to accept unverified opt-out consumers.

Catalogers that survive the first two issues will face interesting long-term issues, as outlined in this discussion. We survived the transition from big-book to targeted catalogs. We survived the transition from targeted catalogs to multichannel mailings that drive e-commerce sales. Our industry will survive the transition to a self-service customer who calls upon us when s/he has a need, a transition that is opposite of our established practice of calling upon a customer when we have a need. Market forces require that we make this transition.

Recessionary Environment: Five Ways To Identify Weak Customer Performance

When a business is not performing to expectations, there are at least five customer-related issues that can identify your problem.



Issue #1: Fewer Loyal Customers Repurchase

Take a peek at this table, illustrating twelve month customer performance (through the end of January) during the month of February.

Twelve Month Customer File Performance: Month Of February
Total Performance
Year	HHs	Rebuy %	$ / Reb	$ per HH	Total $
2008	133,577	4.9%	$129.20	$6.33	$845,649
2007	131,443	5.8%	$128.76	$7.47	$981,627
2006	125,490	5.8%	$127.33	$7.39	$926,761
2005	111,395	5.7%	$125.92	$7.18	$799,531
2004	103,842	5.5%	$123.48	$6.79	$705,233
Percent Change
Year	HHs	Rebuy %	$ / Reb	$ per HH	Total $
2008	1.6%	-15.5%	0.3%	-15.2%	-13.9%
2007	4.7%	0.0%	1.1%	1.1%	5.9%
2006	12.7%	1.8%	1.1%	2.9%	15.9%
2005	7.3%	3.6%	2.0%	5.7%	13.4%

In February 2008, sixteen percent fewer customers chose to repurchase, compared with last year. Notice that the customers who are spending money continue to spend just as much as last year. This is the most common problem in a recessionary environment --- loyal customers simply disappear.



Issue #2: Customers Spend Less

In this situation, you keep your customer base, but your loyal customers simply choose to spend less.

Twelve Month Customer File Performance: Month Of February
Total Performance
Year	HHs	Rebuy %	$ / Reb	$ per HH	Total $
2008	133,577	5.8%	$109.45	$6.35	$847,929
2007	131,443	5.8%	$128.76	$7.47	$981,627
2006	125,490	5.8%	$127.33	$7.39	$926,761
2005	111,395	5.7%	$125.92	$7.18	$799,531
2004	103,842	5.5%	$123.48	$6.79	$705,233
Percent Change
Year	HHs	Rebuy %	$ / Reb	$ per HH	Total $
2008	1.6%	0.0%	-15.0%	-15.0%	-13.6%
2007	4.7%	0.0%	1.1%	1.1%	5.9%
2006	12.7%	1.8%	1.1%	2.9%	15.9%
2005	7.3%	3.6%	2.0%	5.7%	13.4%

Notice that business performance still stinks, but for a different reason. Often, this is a better outcome, because at least your loyal customers are sticking with you, they are just spending less.

Your loyal customers could be spending less for several reasons:

• They are placing fewer orders per loyal customer.
• They are buying fewer units per order.
• They are spending less money per item, buying cheaper items.

You can use the same reporting as illustrated above, simply adding these three metrics to the table.



Issue #3: File Weakness

This is an issue that will rear its head at the end of this recession. Take a peek!

Twelve Month Customer File Performance: Month Of February
Total Performance
Year	HHs	Rebuy %	$ / Reb	$ per HH	Total $
2008	113,540	5.8%	$129.20	$7.49	$850,827
2007	131,443	5.8%	$128.76	$7.47	$981,627
2006	125,490	5.8%	$127.33	$7.39	$926,761
2005	111,395	5.7%	$125.92	$7.18	$799,531
2004	103,842	5.5%	$123.48	$6.79	$705,233
Percent Change
Year	HHs	Rebuy %	$ / Reb	$ per HH	Total $
2008	-13.6%	0.0%	0.3%	0.3%	-13.3%
2007	4.7%	0.0%	1.1%	1.1%	5.9%
2006	12.7%	1.8%	1.1%	2.9%	15.9%
2005	7.3%	3.6%	2.0%	5.7%	13.4%

Pay close attention to this table. Notice that repurchase rate, and spend per repurchaser are as good or better than in 2007. The problem is that there are fifteen percent fewer loyal customers than in 2007, resulting in a demand shortfall.

Again, this issue will rear its ugly head at the end of this recession. You'll know you're pulling yourself out when you see good metrics, but weak file counts.



Issue #4: Customer Acquisition Weakness

Catalogers are familiar with this issue. Oftentimes, the business is performing well, but customer acquisition is starved, due to budgetary issues, circulation constraints, or lousy business performance.



Issue #5: A Combination Of Factors

Most often, multiple issues combine to create a business shortfall.

Twelve Month Customer File Performance: Month Of February
Total Performance
Year	HHs	Rebuy %	$ / Reb	$ per HH	Total $
2008	124,899	5.4%	$122.93	$6.64	$829,107
2007	131,443	5.8%	$128.76	$7.47	$981,627
2006	125,490	5.8%	$127.33	$7.39	$926,761
2005	111,395	5.7%	$125.92	$7.18	$799,531
2004	103,842	5.5%	$123.48	$6.79	$705,233
Percent Change
Year	HHs	Rebuy %	$ / Reb	$ per HH	Total $
2008	-5.0%	-6.9%	-4.5%	-11.1%	-15.5%
2007	4.7%	0.0%	1.1%	1.1%	5.9%
2006	12.7%	1.8%	1.1%	2.9%	15.9%
2005	7.3%	3.6%	2.0%	5.7%	13.4%

Here, households are down after a week Christmas shopping season. Repurchase rates are down compared with last year, and spend per repurchaser is down compared with last year.



Why Is This Important?

The tactics you use to manage a downturn in business depend on the reasons your customers abandoned your business.

When repurchase rates are down, that's when marketers start using incentives (free shipping, % off). This is also when catalogers send more catalogs, e-mail marketers increase e-mail frequency.

When spend per purchaser is down, marketers use promotions like "gift with purchase", or % off with a hurdle (i.e. 20% off your order of $100 or more), trying to drive up spend. Marketers also use liquidation/clearance strategies with this audience, trying to drive up spend per customer.

When customer acquisition is failing, you use customer acquisition promotions, or pressure your catalog/online marketing team to attempt better tactics.

When the whole business is failing, geez, that's not much fun.

The same style of customer reporting is used to understand which merchandise divisions are failing. Replicate the reporting for each merchandise division.

Take some time this week to diagnose the problems your business faces from a customer standpoint. If you don't have the resources available, contact me, send me your customer data, and I'll produce the tables for you.