Dear Catalog CEOs: Matchbacks

Dear Catalog CEOs,

During the past decade, matchback analytics have become an indispensable part of catalog marketing. Without matchback analytics, it is possible you would not have a catalog channel.

The age of the "matchback" changed our perception of marketing.

Do you remember the good 'ole days, like way back in 1994, before we had an e-commerce website, back in the stone age of catalog marketing?

Back in 1994, we cared a lot about the concept of "cannibalization". We executed a lot of exotic multi-variate tests to detect cannibalization. For instance, say we mailed two catalogs, one on September 1, one on October 1.

• September 1 Catalog = $5.00 per catalog.
• October 1 Catalog = $5.00 per catalog.
• Total Demand = $10.00 per customer.

And then, we got excited! If we could generate $5.00 per catalog, maybe we should add a third catalog. So in 1995, we added a third catalog, on September 15.

• September 1 Catalog = $4.00 per catalog.
• September 15 Catalog = $4.00 per catalog.
• October 1 Catalog = $4.00 per catalog.
• Total Demand = $12.00 per customer.

Remember what we thought? We were happy with the new catalog, but we were concerned with the performance of the two existing catalogs. It was almost like they weren't working well anymore! And in fact, if we ran a profit and loss statement, we found that $12.00 of customer demand across three catalogs was less profitable than $10.00 of customer demand across two catalogs.

We thought about cannibalization, a lot. We were genuinely concerned about how one marketing activity cannibalized another activity.

Then matchback analytics came along. The data enabled the catalog vendor community to change our minds about how we thought about marketing activities.

We stopped thinking about "cannibalization". Heck, these catalogs didn't cannibalize business. Nope, these catalogs "added" business, they "drove" business to other channels.

The industry script (supporting an additive model vs. cannibalization) benefits the catalog ecosystem. The co-ops and database vendors created reporting that illustrated how catalogs drove sales across all channels. Their reporting supported the notion that we should rent more names from the co-ops. In other words, matchback reporting fuels the financial success of the co-op and list industry. The paper industry supports the concept of matchbacks. Printers support the concept of the matchback. The USPS supports the concept of the matchback. Your favorite Catalog Consultancy that helps you with mailing plans benefits from the matchback. Even third-party opt-out services benefit from matchbacks ... without matchbacks, they serve fewer customers who are getting unwanted catalogs.

The industry script benefits the entire catalog ecosystem.

Now let's focus on you, the Catalog CEO. Do you benefit from matchback algorithms?

As we head into the Holiday season, I'd like to ask you to do our industry a favor:

• Randomly sample 5,000 or 10,000 customers from the universe you would mail your best-performing Holiday catalog to.
• DO NOT mail these customers your best Holiday catalog.
• Code these customers as a unique segment, and enter these customers into your matchback routine with your favorite matchback vendor. Remember, these customers were not mailed a catalog, so your matchback vendor should show that no orders are matched back to the catalog that you did not mail.

If your matchback vendor matches online orders back to a catalog that was not mailed, then you have an estimate for how much your matchback vendor is over-stating the results of your catalog mailings.

Catalog CEOs, this is a very important topic. If your matchback vendor is over-stating your catalog performance because your vendor fails to take cannibalization into account, then you are over-mailing your customer base, and in all likelihood, you are wasting marketing dollars, squandering profit.

Increasingly, I am hearing of big discrepancies between matchback results and real-world results obtained via holdout tests. One company told me that every phone order was paired with one online order matched-back in their matchback algorithm. And yet, when they executed a holdout group, they only saw a 5% drop in total demand --- almost no phone demand or online demand was lost when the catalog was not mailed.

In other words, cannibalization was so significant that the catalog was basically adding no incremental demand. This is an important concept --- cannibalization testing shows no additional demand, while matchback algorithms show that catalogs drive online business, forcing you to mail more catalogs.

Do you understand the distinction?

Catalog CEO's, please ask your marketing folks to give this test a try. The entire catalog industry ecosystem benefits from matchback algorithms, and they aren't supporting matchback to be evil ... it's the best available reporting folks have. I'm asking you to question your results, to execute a test and validate that the matchback algorithms are giving you honest results. I don't benefit from doing this test, I have no financial interest in positive or negative results. Only you will benefit if you find that orders are being mistakenly attributed to catalog mailings.

So see for yourself! Run a holdout test, code the customers as a segment, run them through your matchback algorithm, and see if there is a bias that is causing you to over-state your results.

Thank you for your consideration,

Kevin Hillstrom, President, MineThatData

J. Crew: Required Reading

If you want to move beyond the "three easy steps to running a multichannel business ... 1 offer great product, 2 make it available in all channels, 3 offer great customer service" punditry, and learn about real people talking about real issues in a real multichannel business, then read the transcript of the Q2-2009 J. Crew Conference Call.

The comments represent the horse sense that is sorely missing from those selling multichannel solutions, from those offering 140 character untested nuggets of wisdom on your favorite micro-blogging service.

For instance, did you know that 40% of the J. Crew online assortment is not available in stores? This violates best practice #1 of multichannel marketing --- "offer the same merchandise at the same price in all channels". And yet, the business is successful in a horrific economic downturn.

Did you also know that J. Crew is wiping out catalog circulation, down 36% vs. last year, violating best practice #2 of multichannel marketing --- "catalogs drive sales across all channels".

J. Crew also is also staying away from the markdown business, violating best practice #3 of multichannel marketing --- "offer incentives and promotions that are redeemable across all channels". Mr. Drexler mentions that once you get in that business, it takes decades to get out.

J. Crew violates best practice #4 of multichannel marketing --- "cater to the long tail of inventory, offering the best customers numerous options to satisfy their needs." J. Crew states that "excess inventory is worse than expired milk".

J. Crew violates best practice #5 of multichannel marketing --- "use multiple channels to grow market share". J. Crew states that you need 150% of the inventory to accommodate 100% of the customers.

Pay close attention to what multichannel leadership talk about, and compare it to what the micro-blogging community and vendor community talk about.

OMS: They Bought Via An E-Mail Campaign. Now What?

You have a customer who purchased online a couple of years ago. Since then, you've sent this customer an opt-in e-mail message, twice a week, 200+ in total.

Today, for whatever reason, that customer is ready to purchase something. Through no fault of her own, the customer receives another e-mail campaign from us. The customer has a choice. Should she click through the e-mail message and purchase? Or should she just key in your website url and purchase?

Does it even matter?

Let's go to the Online Marketing Simulation and find out.

First, we simulate 1,000 2x buyers, first purchase online, second purchase online, both purchases = $150, both purchases from Merchandise Division #3. This will be our benchmark.

• Annual Repurchase Rate = 41%.
• Demand: Year 1 = $104,000, Year 2 = $68,000, Year 3 = $48,000, Year 4 = $38,000, Year 5 = $33,000. Total = $291,000.
• Online Buyers via Offline Source: Year 1 = 124, Year 2 = 75, Year 3 = 49, Year 4 = 37, Year 5 = 31.
• Online Buyers via E-Mail: Year 1 = 162, Year 2 = 88, Year 3 = 55, Year 4 = 41, Year 5 = 34.
• Online Buyers via Search: Year 1 = 32, Year 2 = 20, Year 3 = 13, Year 4 = 10, Year 5 = 8.
• Online Buyers, Pure Web: Year 1 = 99, Year 2 = 53, Year 3 = 34, Year 4 = 26, Year 5 = 22.

Now, we'll simulate what happens if these 1,000 customers instead place their second order via E-Mail.

• Annual Repurchase Rate = 43%.
• Demand: Year 1 = $102,000, Year 2 = $79,000, Year 3 = $63,000, Year 4 = $54,000, Year 5 = $48,000. Total = $346,000.
• Online Buyers via Offline Source: Year 1 = 129, Year 2 = 85, Year 3 = 62, Year 4 = 50, Year 5 = 43.
• Online Buyers via E-Mail: Year 1 = 204, Year 2 = 117, Year 3 = 80, Year 4 = 61, Year 5 = 51.
• Online Buyers via Search: Year 1 = 26, Year 2 = 17, Year 3 = 13, Year 4 = 10, Year 5 = 9.
• Online Buyers, Pure Web: Year 1 = 100, Year 2 = 63, Year 3 = 45, Year 4 = 35, Year 5 = 30.

If the customer converts to an E-Mail purchase, then future value is increased by about $50,000 ... or $50 per customer, so that's a good thing (your mileage will vary). Now look at a sampling of the key online micro-channels. Customers buying from offline sources are not significantly changed. Customers, however, become much more likely to buy via E-Mail (duh).

But there's a more interesting outcome when we look at merchandise divisions. Let's look at the outcome for Merchandise Division #5.

• Pure Web Buyer: Year 1 = 86, Year 2 = 73, Year 3 = 55, Year 4 = 45, Year 5 = 40.
• Pure Web + E-Mail Buyer: Year 1 = 171, Year 2 = 111, Year 3 = 84, Year 4 = 69, Year 5 = 61.

This is why we focus on the Online Marketing Simulation, the "OMS". The simulation tells us how customers are likely to behave in the future because of an action that happened in the past. Combined with Web Analytics, OMS yields very interesting insights, insights that help business leaders make decisions today that profitably influence the future.

In this case, when we encourage a customer to purchase from an e-mail campaign, we change the future merchandise preference of the customer. The executive in charge of Merchandise Division #5 should be partnering with the e-mail marketing team, given the synergy identified in the OMS run.

An OMS analysis complements your Web Analytics enviornment. With Web Analytics, you are easily able to look back in time. With OMS, you get to see the future.

Williams Sonoma Q2 2009 Results

Thought you might find this quote interesting, from their Q2 conference call (click here for the actual transcript):

"In direct marketing we continue to move forward with our catalog circulation optimization strategy. During the quarter year over year advertising expense declined 26% net of a 34% increase in on-line marketing. We continue to believe that refining the balance between catalog sales and on-line marketing is a significant opportunity and we will be participating in a strategic test with Google at the end of the month to test this initiative at the next level."

The second-most popular project I work on is catalog optimization --- reducing catalog expense without a major hit to topline sales. It's a very popular topic these days, for obvious reasons.

Here's a quote about Pottery Barn Kids: "We will also continue to shift our advertising spend from catalog to e-commerce as we capitalize on the new functionality in customized e-mail, affiliate marketing and search."

Here's an exchange you might enjoy --- anybody who's ever been responsible for reducing catalog marketing expense while at the same time is responsible for growing the online channel can relate to this:

Anthony Chukumba – Ftn Capital Markets
I had a quick question in terms of the catalog circulation optimization effort. Your catalog circulation if I wrote these numbers down correctly, catalog circulation declined 19% and your catalog pages declined 25%, but year over year your direct to customer business was down 24%. I guess what I'm wondering is do you feel comfortable that you haven't cut back too much on your catalog circulation? In other words, it strikes me as a little bit out of line that you're direct to customer sales be down even more than your catalog circulation. It sort of implies that some of the circulation you got rid of wasn't necessarily marginal kind of dead beat circulation.

Sharon McCollam
A substantial piece of the reductions were in the Pottery Barn brand, so I'll let Laura speak to the specifics related to Pottery Barn and their strategies, and then I'm going to let Pat talk about the broader catalog circulation optimization strategy. Laura could you take this specifically related to the Pottery Barn brand where you're doing a lot more versioning?

Laura Alber
We have been actually, this is a very important question for all of us and we continue to have a lot of discussion and research done on the subject and we look at it monthly and go through and look at where there are opportunities and make adjustments, and it's a very productive process.
We do have less promotions than last year, so as Sharon said earlier, there are sales that we drove last year that weren't as profitable as they should have been and weren't good for the brand longer term, and that is part of what you're seeing with the direct to consumer decline that's worse than the catalog circulation cut.

Howard Lester
And just to extend that a bit across all of our brands, the techniques, we're in our 23rd year of using the sophisticated regression analysis to rank our file when we go to mail it. And over the growth years, we were looking at how we could use this to find the next best prospect. In this environment, we're able to use these techniques to identify those people who would most likely not buy and not mail them, and we have done a number of control groups and are very confident that the circulation we've cut would have produced minimal sales compared to the cost of having mailed those catalogs. The other point that Sharon brought out earlier, and Laura mentioned, is that we're able to divert some of our catalog spend to on-line digital marketing that is producing more attractive results and we are very optimistic about our opportunities here especially in the back half of the year across a wide range of digital marketing efforts from e-mail, to affiliates to re-targeting to paid search and also the initial results of Google's new caffeine algorithm which tends to favor brands and pushing up our page rankings.

Gliebers Dresses: CMO Candidate #3

We're about to sit in on the final Executive Meeting group interview. Today, the interview candidate is Stan Klepsky, who was previously the Executive Vice President of Marketing for the Bentley catalog.

Glenn Glieber (Owner): "... and Candi, you can tell Anderson Cooper that we are NOT using Twitter and the Save Gertie campaign to artificially drive up our follower numbers to compete with CNN."

Meredith Thompson (Chief Merchandising Officer): "Kevin, is that you?"

Kevin: "Yup, it's me."

Candi Layton (HR and Chief Customer Officer): "We continue our fine tradition of group interviews at Gliebers Dresses with the final CMO interview, featuring Stan Klepsky, the former EVP of Marketing for the Bentley Jewelry catalog."

Stan Klepsky: "Thanks for having me today, everybody, I REALLY appreciate it. I requested a catalog of yours a couple of weeks ago, and spent considerable time thumbing through it over the last week. What a beautiful piece of creative imagery! You don't go too far, you know? Sometimes these fashion people reduce density and show one image per page and somehow expect the catalog to sell stuff. This catalog is a perfect blend of merchandising and creative. You have these wonderful callouts, too. Here, look at page 49, you illustrate eight lovely dinner dresses, and then direct the customer to the web for your extended assortment. Beautiful! I imagine that works really well, and drives considerable online volume. Your web analytics team must salivate when they think of the 20% conversion rates they get from that kind of qualified traffic. And you've even kept the order form in the catalog. That's a great, low-cost way to not alienate your older customer. All of the details of cataloging are in place. You call out your new loyalty program via a dot whack on the cover, hey, how's that going, huh? Buy four dresses, get free shipping for the rest of the year, that's an amazing value! I think this catalog is easy to shop, I mean, look at the copy in this thing. The copy creates a sense of warmth, yet, there's a personality to the copy that makes the catalog human. You know how all of those e-commerce websites are so cold, so sterile, same layout and same fonts and same colors and same links and same guarantee of secure shopping, all optimized for performance in the exact same way using the same web analytics software and same industry consultants. I can just picture the woman, I imagine her name is Nancy, sitting on the couch, 9:35pm at night, glass of wine in her hand and a Jim Brickman CD playing in her Bose Wave Radio, thumbing through this classic marketing vehicle. Oh, I tell you, this thing ..."

Meredith Thomspon: "YES! That's what I'm talking' about! We need to think about the target customer, and market to that target customer the way she wants to be marketed to."

Lois Gladstone (Chief Financial Officer): "Let me ask you a question. We're not made of gold bullion around here. How would you minimize catalog expenses yet drive sales increases in all channels?"

Stan Klepsky: "Oh that's an easy one, friends ... REMAILS! You take this beautiful catalog sitting here in front of us, and you just swap out the cover and back page with new images, change the item numbers for tracking purposes, and then mail the same catalog to the same customer. In fact, do this three or four times with the same catalog. You save a ton of money on catalog expense, and you only experience a dropoff in performance of maybe 20% or 25% per remail. I'm sure you're already maximizing your remail strategy, but if you aren't, that's the place where I'd start. And those remails drive web volume, too. Heck, I'm sure you're just like every other catalog brand, generating 70% or 80% of your online volume from the catalog. All of those online pundits, talking about PPC, they don't know their PPC from an SCF, do they? It's the paper catalog that makes the online thing go, folks! Ask an online marketer to drive business without paper, and they'll just stare at you, wondering how they will ever get traffic that converts at a 12% rate."

Pepper Morgan (Interim Chief Marketing Officer): "What do you think of a different strategy, one where you alternate large page counts with small page counts --- mailing the small page counts to a deep audience?"

Stan Klepsky: "Geez Pepper, that sounds risky. I like the tried and true remail formula. It's been used for decades. It's an established best practice. I'd have to see a few years of performance on the strategy, and I'd have to see a half-dozen companies utilize that strategy effectively before I'd climb on board that train. You know, I don't think anybody at ResponseShop has told me that anybody is employing that kind of strategy. I'd want to see the folks at ResponseShop issue a white paper, telling us that the strategy is a newly established best practice before I'd sign up for it, you know what I mean? Cataloging is not a place for reckless experimentation, Pepper. There's a reason cataloging is a one-hundred year craft and e-commerce is a decade-long experiement."

Meredith Thompson: "A lot of folks are telling us we cannot grow a catalog business in the modern world of e-commerce. Can we grow the catalog portion of our business?"

Stan Klepsky: "Geez Meredith, who's been painting that kind of graffiti on your wall? Cataloging is a simple business model, really. It's all about segmentation. See, you segment your customers by recency, you know, 0-6 month, 7-12 month, 13-18 month, you get the picture. Then you segment by frequency, you know, one time buyers, and those multi-buyers. Now that you've got your segmentation strategy, you surgically determine a promotional strategy. Your current customers, those 0-6 month folks, they get a free shipping offer, well, wait, you already have that loyalty program, so why not just promote the loyalty program, right? And then you've got those 37-42 month buyers, well, you simply stimulate them with a compelling offer, like 20% off your next order of $50 or more, and you make sure you put that $50 hurdle in there to protect your profit and loss statement, right? You run a whole bunch of tests at different hurdle levels, too, trying to find the optimal hurdle level. I'd be happy to run the profit and loss scenarios for you, And then you've got outside lists. Aren't those folks at ResponseShop something else? You just get on the phone with your account rep, I personally like working with Eldon Mayer, and you just say something like 'I need 6,375,000 names for our next catalog', and they apply that harmony model and then you plop those names in the merge and coordinate with your printer to maybe put a personalized inkjet message on the back cover, because customers really like that personalization stuff ... heck, maybe you even inkjet a personalized URL on the back cover, and then use your web analytics tool to track the performance of the inkjet messaging, that should make those Web Analytics folks just salivate, right?. Anyway, ResponseShop can integrate all of that for you along with their own measurement system that matches back online purchases to the catalog that drove the online purchase, you just tell Eldon Mayer how you want the analysis to look and I tell you what, it's as if he can make the analysis look the way you want it to look! And my goodness, at last year's catalog conference, ResponseShop had the best party of the whole lot, I mean, did you get a load of the prawn pyramid they wheeled out at 9:00pm? And how the heck did they get Christopher Cross to perform at the party? Wow, he really brought down the house with that acoustic version of 'Sailing'. So yes, you can grow a catalog business, you just have to follow established best practices. I think too many people have forgotten about best practices, they're just out there winging it, writing manifestos telling us that the world changed, that you cannot do things the way you used to do them. I'm here to tell you that if you follow the rules, you'll follow a prescription for success!"

Roger Morgan (IT and Operations): "Stan, can you explain the climatological conditions that cause Oklahoma to be called 'tornado alley'?"

Stan Klepsky: "That's an odd question, Roger, but thanks for volunteering it. I think it has something to do with the Gulf of Mexico, right? I think the Weather Channel had an episode of 'Storm Stories' about that topic, right? You know, one of those stories about a tornado that blew through Norman, OK, and some school teacher told her kids to get in the basement but little Timmy decided to go outside and then the teacher had to rescue him just as the tornado leveled the school, and just as you're caught up in the human drama of the storm, they cut away to a commercial with that goofy insurance duck riding in a racecar and then they have your local forecast on the 8s and you're wondering why your picnic is going to be ruined by a 40% chance of thundershowers, some containing high winds and hail."

Candi Layton: "You have a real passion for cataloging. Is passion missing from commerce?"

Stan Klepsky: "Oh Candi, it's so true, the passion is gone. There's nothing like the in-home week of a catalog. You get in to work on a Monday morning, and you look at your flash sales reporting on an hourly basis, don't you? You compare sales by hour vs. your plan, and then you see deviations, like sales are up 120% vs. forecast and you ask yourself if the plan is wrong or if the catalog is being delivered too soon by the post office or if the catalog is really going gangbusters, right? And then you dig into the zip code reporting and you realize that the catalog is only generating sales in Louisiana, Alabama, Georgia, and South Carolina, so you get on the horn with your printer and you ask them why the heck they transported the catalogs to the BMCs and SCFs too fast, and your printer says they did everything like you told them to do it, so then this is becoming a big puzzle that you have to solve because maybe this catalog is actually below plan and you just don't know it, so you start studying the merchandise trends and you have to study those trends via telephone sales because the e-commerce sales are clouded with activity like some banner ad on MSN that has a 0.00004% click-through rate and then you realize that it is noon and it is time for lunch, but you skip lunch because now your reports, your 'KPIs' as the kids say, are showing you that you're getting sales from Arizona and California too and the catalog is merely 20% above plan so maybe your forecast is wrong. All of that happens before 1pm on the Monday of an in-home week. It's so much fun! And by Tuesday at 1pm the whole company wants to 'call the catalog', right? Everybody wants to say, based on 36 hours of sales performance, if the catalog is above plan or below plan, heck, you have those inventory hounds all over you about placing reorders or about creating a 48 page clearance catalog that could also potentially be a package insert or even be selectronically bound into an upcoming catalog, so you're problem solving those issues prior to your Tuesday 1pm forecast meeting with the inventory team. And then everybody questions your forecast, and why they do that I don't know, because they couldn't forecast the sunrise if they had a newspaper in front of them that printed the time the sun was going to rise in the morning."

Lois Gladstone: "What is the role of the e-commerce channel for a catalog brand?"

Stan Klepsky: "It's the gold standard of direct-to-consumer shopping these days, isn't it? I just purchased an MP3 player from an online electronics retailer, free shipping and two day delivery, how do you beat that? The whole e-commerce world has just exploded, and it's a darn good thing that there are catalogs and retail stores to fuel the whole thing. I honestly think that without stores or catalogs, e-commerce wouldn't exist. Heck, I purchased my MP3 player from an online pureplay because another electronics cataloger sent me a catalog. The catalog created demand, then I went online and found the best price, cheapest and fastest shipping, and bodda-bing, I've got my MP3 player. The catalog created the demand for a competing online pureplay. Catalogs and Stores are always creating demand. If I weren't speaking to like-minded individuals, and I were interviewing at an online brand, I'd probably ask them one question --- 'after you strip out all of the traffic that your offline competitors drive to your site, after you strip out all of the traffic that is associated with Google, after you stop adoring the 0.000004% click-through rate on MSN, how the heck are you going to get customers and prospects to visit your site?' Wouldn't you ask them that question?"

Kevin: "Stan, I have a question for you. Where you think the catalog industry is heading?"

Stan: "Kevin, good question. Do I look like Carnac? Ha! Remember when websites were created back in the 1990s? We were all intoxicated by Amazon.com, and Pets.com, right? But the whole thing was a big gold rush, and the winners were a small number of online brands and then all of the established brands that simply added e-commerce functionality to their existing business and crushed the online brands. Honestly, most of us didn't fundamentally change how we did business, and we did just fine, didn't we? Our catalogs drove e-commerce sales, allowing us to basically conduct business the way we did back in 1994. Now, all of these social media experts are telling us with their manifestos and tweets that e-commerce and old-school cataloging is dead, that it is all about community and online relationships. And honestly, how do you become a social media expert? Is there a form I have to fill out? There's like 12,000 social media experts, and they seem really good at pointing out everybody else's faults, right? If that's all it takes to be a social media expert, sign me up, I can point out faults, too. Anyway, once again, we're going to be proven right. Time will tell us that, in the case of Gliebers Dresses, we're just selling dresses ... that's all that Gliebers Dresses has ever done, with the catalog at the core of the experience, creating all of the romance while tweets are orbiting the brand like moons orbiting Jupiter, if you know what I mean. There's always going to be a woman, in bed at 9:30pm, nightstand light on, thumbing through her Gliebers Dresses catalog. Sure, she might tweet about a hoodie dress she saw for her daughter, and maybe in the future she's looking at her catalog on the Kindle. Sure, she might click through an e-mail campaign and buy online. But the core experience begins with the woman in her bed at 9:30pm thumbing through a catalog."

Kevin: "Stan, have you personally experimented with Social Media, and if so, what role does social media play at a modern catalog brand?"

Stan: "Social Media, schmoshial media. What a pile of dog doo. I started my own Twitter account a few months ago. I put absolute nuggets of gold out there, too, not the standard pap that the social media consultants throw out there. Have you read some of this stuff? You'll read that "brands need to communciate with an authentic voice", or "unless you join the conversation, you're destined for the scrap heap." How do you have an authentic voice 140 characters at a time? I put good stuff out there, real facts, stuff like "personalized ink jet messages increase response rates by an average of 1.2%." or "work with ResponseShop to identify highly responsive multi-buyers.", or "selectronically bind four pages of winners in the middle of your saddle-stitched catalog to improve profitability", you know, the kind of stuff that actually makes companies money. Nobody followed. Nobody. And yet, you go read the pap that those social media folks write, and they've got 27,483 followers, apparently all of them are craving to have authentic conversations with brands. Nobody has a conversation with a brand. Brands sell you stuff, you buy stuff, that's all there is to it. When have you ever had a real relationship with a brand? Who'd want one? Would you rather have dinner with your friend, Perry, or would you rather have dinner with a brand? That's why I love cataloging. I keep going back to the woman sipping from a glass of Syrah in her pajamas, thumbing through the pages of a well-done catalog selling vehicle, with George Winston playing on her Bose Wave Radio. Would you rather have your brand represent that image, or would you rather have your brand have an authentic voice that gets re-tweeted, 140 characters at a time, to 27,483 followers?"

Glenn Glieber: "Well, we're basically out of time. Stan, thanks for being so generous with your thoughts. On to the next topic, Pepper, I'm feeling a bit uncomfortable with the May 2010 catalog, I really think we need more pages. Could you work up a scenario for the May catalog, seeing what kind of sales increase we get if we go from 108 pages to 116 pages? Thanks!"

Stan: "Ohhh, I can do that. I like to add in demand at half the rate of pages added. So if your catalog was scheduled to generate $3,000,000 in demand, and you go from 108 to 116 pages, I'd estimate a 3.5% increase in demand based on a 7% increase in pages. Just add in $110,000 of demand, and see what the profit and loss statement looks like."

Glenn Glieber: "Pepper, why can't you calculate that information on the fly like Stan just did?"

Gliebers Dresses: CMO Candidate #2

We're here today to have a discussion with CMO Candidate #2, Maria Garcia, Online Marketing Executive at BlueDotRedDotGreen.com.

Glenn Glieber (Owner): "... this Twitter campaign to Save Gertie is out of control. Who the heck paid for the airplane to fly over the building for an hour yesterday with a 'Save Gertie' banner trailing from the tail section? Now we're being mocked in the SmartBrief on Social Media publication. Many of you didn't think I read that thing, but I'm a hip CEO. Roger set me up a bunch of alerts and subscribed me to all of the leading trade journals, so I can follow the madness. And this is madness. Pepper, you're in charge of marketing, if Candi cannot fix this via social media, then please issue a press release or something that tells our side of the story."

Meredith Thompson (Chief Merchandising Officer): "Kevin, is that you?"

Kevin: "Yup, it's me!"

Candi Layton (HR and Chief Customer Officer): "We're about to continue a great Gliebers Dresses tradition, the group interview! Today, our candidate is Maria Garcia. She's the Online Marketing Executive at BlueDotRedDotGreen.com, an online pureplay that focuses on personalized products. Let's start the discussion."

Meredith Thompson: "How do you forecast demand for personalized products?"

Maria Garcia: "We're never trying to forecast how many t-shirts will have the phrase 'Have a Blast!' on them. We do a reasonable job of knowing how many t-shirts we'll sell by size and color."

Lois Gladstone: "You don't have a catalog to drive sales. So ... how do you drive sales?"

Maria Garcia: "Honestly, we have a vibrant online community that sells for us. You only get access to our discounts and promotions by being part of our community, and you only become part of the community by being invited by a friend, sort of like the way that Gilt operates, an indirect discount competitor of yours. This creates a level of exclusivity that is hard to match."

Meredith Thompson: "But how do you communicate the message without a catalog?"

Pepper Morgan (Interim CMO): "Let me ask the question in a different way. If you had the advantage of having a catalog, like we do here at Gliebers Dresses, how would that change how you would communicate with customers?

Maria Garcia: "In many ways, I think the catalog represents a different shopping environment, and a different customer. If I were lucky enough to be hired here, I'd look to keep the audience that likes to shop with catalogs, and I'd look to build a whole new audience using the community-based tools I've developed at BlueDotRedDotGreen.com. I'd even consider creating a spin-off brand, similar merchandise, but different website, different brand identity, different level of community building, you know?"

Roger Morgan (IT and Operations): "Maria, can you describe the ingredients that comprise a hot dog?"

Maria Garcia: "What kind of question is that?"

Kevin: "I have a question for Maria. How do you measure the lifetime value of a customer who brings other customers into the community? In other words, you cannot be part of the community without being invited by a friend. So how do you measure the incremental value of community members who invite many friends?"

Maria Garcia: "Our database links all invites to the original community member. We allocate lifetime value on the basis of invites. We know that each invite is worth $70 of lifetime value. Before beginning this program, individuals who participated in our promotional program were worth $30 of lifetime value. So we know that each invite is worth an incremental $40 of lifetime value. Roger, would you be able to set up an environment like that here, so that if we implemented an invite-based community program, we could measure long-term value?"

Roger Morgan: "Sure, we'd just have to put that project on the book of work, and prioritize it as appropriate. Now Maria, I have a question for you. Which state was admitted to the Union first ... Wyoming, or New Mexico?"

Maria Garcia: "What kind of question is that?"

Kevin: "What type of tools do you use to analyze customer behavior?"

Maria Garcia: "We have an in-house customer database, and we feed database attributes from Google Analytics to our in-house customer database, called 'Cheyenne'. We do ad-hoc analyses with 'R', SQL, and Microsoft Access."

Roger Morgan: "How did you arrive at that toolset?"

Maria Garcia: "We purposely go with inexpensive, open-source solutions. Our merchandising systems are all written with open-source software, and are fully integrated with the customer database."

Roger Morgan: "Must be nice to build things from scratch, as opposed to having to integrate new solutions with old platforms."

Candi Layton: "You don't have a lot of catalog experience. How would you compensate for that lack of experience?

Maria Garcia: "I'd lean on Meredith, to be honest. Based on our discussion earlier today, she knows everything. I think the two of us could bring out the best in traditional techniques and new thinking."

Pepper Morgan: If Glenn asked you to forecast the change in performance of a catalog that was 116 pages, and now will be 124 pages, how would you do that?"

Maria Garcia: "I'd ask Meredith! Seriously, she would know of some sort of short-cut that I could use."

Lois Gladstone (Chief Financial Officer): We don't have a lot of money for marketing at Gliebers Dresses. How would you make every penny count in your marketing efforts?

Maria Garcia: "We don't have much money at BlueDotRedDotGreen.com. Outside of a bit of paid search, almost all of our marketing is community-based marketing, it's basically free marketing."

Glenn Glieber: "I love free marketing!"

Maria Garcia: "And honestly, we'd love the free publicity you are getting over the Save Gertie campaign. Why would you ever want to stop that? Let the drama play out for another week or two, and then actually Save Gertie, send her someplace to 'retire' --- heck, have your Twitter audience decide where Gertie is saved. That should be worth a ton of PR."

Roger Morgan: "I think we want to eat Gertie, right Glenn?"

Meredith Thompson: "At our core, we're a cataloger. I haven't heard you say anything that suggests you believe in the future of cataloging. As Chief Marketing Officer, how would you grow our catalog business?"

Maria Garcia: "I don't think you should hire me if you want to grow a catalog business. You should hire me if you want to grow your dress business. Last time I checked, your business was named 'Gliebers Dresses', not 'Gliebers Catalog', right? It is my opinion that catalog marketers are obsessed with the catalog marketing channel. Why aren't catalogers obsessed with the merchandise? I've spent a lot of time researching the catalog industry, and I must admit, I'm baffled. While online brands have grown like weeds in the last decade, the catalog industry seems mesmerized by vendorspeak, the non-stop messaging that suggests that there's no better marriage in marketing history than a 128 page catalog with 120 pages of dead trees that the customer couldn't care less about, coupled with a website that acts as a glorified order form. And then you read about who it is that puts out these messages, and it is companies like ResponseShop. You guys work with ResponseShop, right? Well of course ResponseShop is going to volunteer messages like this, because it is in their financial best interest to do so. Tell me why the catalog industry hasn't revolted against this type of information campaign, because this information campaign sure failed to launch catalogers into the 10% EBT stratosphere, right?"

Glenn Glieber: "Well, we have to get Maria on a plane, so we'll have to stop this stimulating discussion right here. Pepper, I'm feeling a little bit uncomfortable with our page counts for the March 2010 catalog. Could you work up a quick scenario where we add, say, eight pages, and then see what that does to the bottom line? Thanks!"

OMS: Keyword Optimization

Any online marketer and web analytics practitioner looks to maximize the performance of her business. Typically, this is done by analyzing campaign performance. The marketer and web analytics practitioner work together to make sure that current activities are optimized.

The Advanced Web Analytics Practitioner knows that all current activities cause changes in future activities.

For instance, a set of keywords may yield lower costs, higher conversion, and as a result, an increase in short-term profit. From an SEO, Online Marketing, and Web Analytics perspective, this is all good.

From an Online Marketing Simulation (OMS) standpoint, it may be good, it may not be good!

In my dataset, Merchandise Division #4 represents a product line with more expensive price points. Merchandise Division #3 is an extension of Merchandise Division #4, with less expensive price points. Not surprisingly, customers flock to Merchandise Division #3!

So, let's run simulations of future performance on 1,000 customers. Remember, we categorize customers based on combinations of future value, advertising channel preference, physical channel preference, and merchandise preference. This yields anywhere between maybe 80 and several thousand segments. Once done, we apply twelve-month sales and profit value to each segment, we migrate customers to their new segment, then we replicate the process four more times, with the ultimate destination being the segments that these 1,000 customers will reside in five years from now.

The first simulation is for a paid search customer buying from Merchandise Division #3, the division with lower price points.

• Annual Repurchase Rate = 24%.
• Demand: Year 1 = $51,000, Year 2 = $35,000, Year 3 = $28,000, Year 4 = $25,000, Year 5 = $23,000.
• Merchandise Division #3 Buyers: Year 1 = 128, Year 2 = 72, Year 3 = 52, Year 4 = 45, Year 5 = 42.
• Merchandise Division #4 Buyers: Year 1 = 113, Year 2 = 65, Year 3 = 48, Year 4 = 41, Year 5 = 38.

Ok, now let's run simulations of future performance on 1,000 customers buying from Merchandise Division #4 via paid search --- this division has similar product, but higher price points.

• Annual Repurchase Rate = 42%.
  Demand: Year 1= $123,000, Year 2 = $76,000, Year 3 = $52,000, Year 4 = $41,000, Year 5 = $35,000.
• Merchandise Division #3 Buyers: Year 1 = 169, Year 2 = 103, Year 3 = 70, Year 4 = 54, Year 5 = 46.
• Merchandise Division #4 Buyers: Year 1 = 258, Year 2 = 137, Year 3 = 87, Year 4 = 66, Year 5 = 55.

The typical web analytics practitioner partners with the online marketer, seeking to optimize conversion rates and transaction profitability. Once the transaction is complete, the typical web analytics practitioner and online marketer moves on to the next conversion.

In this case, which customer are you willing to pay more to acquire? I'm willing to pay a fortune for the customer who purchases from Merchandise Division #4. I'll gladly sub-optimize my short-term business in order to acquire a customer that will spend more in the future in both Merchandise Divisions!

This is what Advanced Web Analytics via the Online Marketing Simulation (OMS) is all about. We want to understand how our optimized short-term decisions impact the long-term health of our business.

Keyword Optimization requires a view of long-term performance, in order to be successful. The OMS environment can point you in the right direction.