Dear Catalog CEOs: Filtering and The Death of the Mailbox

Dear Catalog CEOs:

My most enjoyable Multichannel Forensics projects have two components.

1. Predict the future.
2. Filter the audience into actionable segments that increase the amount of profit you generate.

When I filter the audience into actionable segments, I receive interesting feedback.

• "You're telling me I shouldn't mail 12,000 of my best customers? That's crazy!'
• "If I reduce contact frequency, I'll reduce sales. My business needs to grow, not shrink!"

We live in interesting times. Never before have we had to deal with something like "The Death of the Mailbox".

This week, do an experiment. Take every piece of mail you receive, and divide it into three piles.

• Pile #1 = Bills.
• Pile #2 = Stuff You Don't Want Or Didn't Ask To Receive.
• Pile #3 = Communications You Asked For Or Wanted To Receive.

At the end of the week, count every piece in each pile. Divide the quantity in Pile #3 by the total quantity of mail you received. What is the percentage of mailbox content that you want to receive, that you are excited to receive?

We fight battles on three fronts.

• Customers increasingly communicate digitally, first via e-mail and SMS/text, then via social networks, and increasingly to the real-time web.
• Customers increasingly purchase digitally, via e-commerce, and eventually, purchasing via emerging three-dimensional trends like hologram marketing ... heck, 3-D television is here next year. Just think about a 3-D web experience that integrates holograms in a Twitter/Facebook kind of way. Oh boy.
• The signal-to-noise ratio in the mailbox degrades as customers continue to shift habits online.

Strategically, we have to have a response to The Death of the Mailbox.

Tactically, we can become more profitable, starting tomorrow, by finding ways to reduce the number of catalogs to customers who have moved beyond the mailbox. We do this by keeping track of the following (what I call 'filtering'):

• Telephone Orders (skew to catalog).
• Online orders in the first seven days after catalog in-home date (skew to catalog).
• Online orders on days farthest away from in-home dates (skew to online).
• Source of acquisition = Abacus, other co-ops (skew to catalog).
• Paid/Organic Search on days away from in-home dates (skew to online).
• Clicks on e-mail campaigns (skew to online).
• Non-catalog merchandise purchased (skew to online).
• Uses discount code to purchase, obtained online (skew to online).
• Urban customer (skew to retail).
• Referring URLs from social media sites, Twitter, Facebook (skew to the future).
• Uses your mobile website (skew to the future).

There are an endless number of attributes to focus on. In my projects, I model these attributes, and create a score (called the "organic percentage" ... the percentage of demand not generated by catalog marketing activities).

This helps us solve The Death of the Mailbox. We get to have our cake, and we get to eat it, too. For the audience that loves catalog marketing, we get to keep doing what we've always done. For the ever-increasing audience that has moved online, or is moving in an endless combination of unpredictable micro-channels, we mail far less often, saving our company a bunch of expense and generating a lot of profit, profit that we re-invest in new customers or in new products or the development of micro-channels.

My average client generates between seven and one-hundred times more profit than the cost of a typical Multichannel Forensics project, just on the filtering component of the project alone. In other words, a $15,000 project yields $100,000 to $1,500,000 profit ... most often around $500,000 profit for a $15,000 project, depending upon the targeting strategies already employed by the client.

In other words, filtering works. And your team can do the filtering on your own, the tools are available!

The Death of the Mailbox doesn't have to be a bad thing. We just have to be strategic about it ... keeping our existing strategies in place for the customers who like this style of relationship --- using filtering strategies to cut back on mailings to the audience that is moving away from the mailbox, while employing online micro-channels that truly increase profit.

We'll get through this transition!

Gliebers Dresses: The DMA Edition

Welcome to the weekly Executive Meeting.

Glenn Glieber (Owner): "All I have to say is that you don't do anything inappropriate with your employees. You're responsible for their well-being, you're paying them, their lives are in your hands. You don't use employees as your own private dating service."

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

Kevin: "Yup, it's me."

Lois Gladstone (Chief Financial Officer): "Have you heard about the kerfuffle within the Direct Mailing Association?"

Roger Morgan (Chief Operations Officer): "You know, the civil war between the ousted board member and the CEO?"

Pepper Morgan (Chief Marketing Officer): "It's shameful on both sides, considering they keep spamming our inboxes with their infighting. Aren't they supposed to be offering us best practices in e-mail communications? Doesn't the DMA jack up annual dues and then offer us these white papers on how to treat customers via e-mail marketing?"

Roger Morgan: "How much do we spend a year on annual dues with the Direct Mailing Association?"

Pepper Morgan: "We spent $13,500 in 2006, $15,000 in 2007, $16,500 in 2008, and we'll spend $19,000 in 2009."

Lois Gladstone: "That's $64,000 that could have been spent acquiring new customers, or better yet, spent on loyalty programs to keep our existing customers. Can somebody tell me what the ROI is, I mean, how much profit have we made as a result of this $64,000 investment?"

Roger Morgan: "Oh heavens, that's nearly impossible to calculate, isn't it? I mean, my team attended close to a dozen Direct Mailing Association conferences over the past four years, and we learned so much at those conferences while saving hundreds of dollars per conference because we are a member. So right there alone, we've made up some of the investment."

Meredith Thompson: "Actually, it's easy to calculate, isn't it? We lost $64,000, and then we spent another, what, maybe $15,000 on DMA conferences, so we're out $79,000, and then they charged us maybe $3,000 less than non-DMA members to attend the conferences, so we're out $76,000 total. Then we subtract the profit we made because we learned something at the conferences. Did we learn anything that we applied to our business? I don't know, it is hard to say, isn't it?"

Roger Morgan: "No, I don't buy that logic. The DMA advocates on our behalf. Who knows how much profit we would have lost if they weren't actively lobbying for us in Washington? And I love having access to their white papers, that really expands our thought leadership. You cannot put a price on that. We're trying to assign ROI to things that aren't easily measurable."

Lois Gladstone: "In the time when the DMA advocated on our behalf, we've had telemarketing legislation that basically killed that channel, we've had CAN-SPAM that essentially crippled classic e-mail marketing, and we've had a 35% postage increase --- heck, we haven't been profitable since the postage increase have we? Hmmmm."

Pepper Morgan: "And doesn't the Direct Mailing Association help all mailers, not just catalogers? I mean, what do they do when the banking industry demands concessions, concessions that cost us more money? How do they advocate in a way that helps one set of organizations but penalizes catalogers? I say we get out of the DMA, save our pennies, and spend our own money on our own customers."

Lois Gladstone: "I agree. We should not give up gross margin dollars to a trade organization that doesn't deliver a return on investment."

Pepper Morgan: "We should switch to the upstart Alliance of Catalog Merchants Association. I think their dues are only a few thousand dollars a year."

Roger Morgan: "Come on, people, nobody joined that organization. How many members do they have, eighty or maybe ninety? The DMA is where the critical mass is, that's where we need to be, we need to have a unified voice. If the catalog industry is so angry with the DMA, then why wouldn't the entire catalog industry just leave the DMA and support the Alliance of Catalog Merchants Association? Nobody in the catalog industry is really upset or angry, if they were, they'd do something about it. Don't you think the DMA would change if every cataloger left? To be honest, I'd be perfectly comfortable funding both groups. But let's not give up on the DMA."

Lois Gladstone: "I heard the President of the DMA earns something like a half-million dollars a year salary, and has health care benefits. Isn't that insane? Nobody here earns anything over $350,000 a year. They're simply out of touch. And didn't they let go of something like half of their employees when the economy collapsed? How do you do that? It's bad signalling, I'll tell you that. It's gross!"

Roger Morgan: "Lois, you did the same thing. You came in here with a gaudy salary when compared with what I pay a person to work in our distribution center, and you demanded that we shed twenty percent of the workforce to stay alive. How is that any different? And then you buy a new BMW and park it right in front of the front door of the building for all to see. What kind of message does that send to a distribution center employee?"

Meredith Thompson: "Who's side are you on, Roger?"

Roger Morgan: "I'm not on the side of hypocrisy, I'll tell you that. Our industry loves the argument, the gossip, the grumbling, the blasting of the big salary. All of it distracts us from the core issues we're facing. Heck, I'd rather gossip about a huge salary than to strategize about what the death of the mailbox truly means."

Meredith Thompson: "Somebody should give Roger a happy pill. Kevin, what do you think?"

Kevin: "Maybe the hardest thing for an industry to do is to change from within. Change from outside doesn't look right, it seems foreign and unfamiliar, so it isn't embraced. And change from within sometimes focuses on solutions that are congruent with the thought process generated from within, making that style of change less likely to be successful. I think Roger makes an interesting point ... it isn't fun to spend time thinking about the real issue here, the death of the mailbox. Maybe that's what the Direct Mailers Association is doing. Maybe they are trying to find a path into the future, while protecting the past --- and the past includes a nice salary. I don't know, I don't have inside information."

Glenn Glieber: "I think I've had enough of this talk for one day. We're wasting too much thought on an issue that doesn't really matter. The DMA isn't going to help me sell dresses in November. I want to know what we're doing to sell dresses in November? Anybody have any bright ideas for how we're going to sell dresses in November? Now let's get back to the agenda. We need to decide what color we're going to paint the lunchroom. Who wants to go with taupe?"

OMS: Price Points

It's trendy in online marketing to entice customers to purchase with low price points, discounts, and promotions.

But is it healthy for you business, in the long-term?

Let's look at an example from the OMS Spreadsheet (e-mail me if you wish to follow along, I'll send you a copy).

Zero out cells D6 - G6.

Zero out cells B101 - B580.

Now we're going to compare the evolution of two segments of new customers.

Go to cell B419, and enter the number "1,000". Now go up to the top of the spreadsheet, and look at cells C17 - G18. In the future, these customers like to purchase 3-4 items per order, spending $30 to $40 per item. In the year the customers were acquired, they spent $159,000. These customers basically stay stuck in department 11.

Next, zero out cell B419, and instead enter "1,000 into cell B421. Now go up to the top of the spreadsheet, and look at cells C17 - G18. In the future, these customers like to purchase much more expensive items. In the year the customers were acquired, they spent $147,000 ... but these customers are likely to migrate to expensive items in department 15. These customers hold much more potential than do other customers.

Online Marketers have the opportunity to carefully link the micro-channel the customer purchases from with the merchandise the customer purchases and the price point of the merchandise purchased. The combination of micro-channel, merchandise, and price point yield a customer that has outstanding potential, or limited potential.

This is an important area for online marketers to provide attention to!!

This Week In Business: Zappos Twitter Strategy

Well, you can't throw a Pottery Barn catalog without hitting somebody who promises business success on Twitter.

I find the whole Twitter thing vexing. My own presence (follow me here) finally found a groove ... more than 1,000 followers discussing various questions I ask on a daily basis.

But enough about me. You frequently ask me how you might use Twitter to increase sales.

So why don't we look to the leader, Zappos, to see how their folks use Twitter.

As you may already know, Zappos gives considerable flexibility to employees using social media, and allows you to see what all employees are currently talking about. So let's take a brief look at a few employee comments.


Customer Service --- Click Here For More: @Zappos_Service

• @jefframone Thank you for shopping with us! I hope you enjoy your shoes =)
• @hevipetter Did you know that we also carry handbags to go with your cute boots? http://www.zappos.com/bags
• @trappedinabay Please let us know if you need any assistance! We are here for you 24/7 by calling 1-800-927-7671.
• @kooskoos Did you know that we also sell clothing to go along with your shoes? http://www.zappos.com/clothing
• @Delirium7 I'm sorry the heels didn't work out for you. Please give us a call at 1-800-927-7671 if you need further assistance.
• @kastner We apologize for any inconvenience. That site was just a test and we decided not to go forward with it at this time.
• @drudy We love you too! Thanks for shopping with us!
• @_cyndi I love these shoes! I have the same ones in the White/Carbon/Orchid. Enjoy!
• @denimmafia Actually here is the real link to our sale section :-) http://www.zappos.com/sale
• @marysam I'm sorry that we are currently out of stock in your size. Please DM (direct message) me your email address and I will be happy to help!
• @tenaciouscb We apologize for any inconvenience. Please DM me if you are still experiencing any problems with your account or the site.
• This is Josh signing off and wishing you all a good night! We'll be back here to WoW tomorrow morning!
• Goodmorning Everyone! Tasha here, ready to WoW you this am!

Learn anything from the thirteen tweets outlined here?

Honestly, read the comments. There is nothing magical here. This isn't about Twitter. This isn't about Social Media. This is 100% about human beings offering customer service, about human beings being humble, about human beings selling merchandise. Remember selling? That's our job, as marketers. We are supposed to sell stuff.

And yet, it is the human element of this, it's the service element that may be judged by some to be magical --- not the social media marketing channel. How many of the businesses we work for would be willing to publicly apologize for being out of stock on an item? How many of the businesses we work for would be willing to publicly apologize for testing a new site out and disappointing a customer in the process?

The human element will cause some problems, too. Read a few of the tweets from Zappos employees, tweets that take on a different tone:

• @bassred says "Hey T-Mobile. Now on day five without data service. your live chat is unavailable. thinking customer service is not very important to you."
• @seanyboysp says "At tropical smoothie cafe with the wifey and baby boy.. maverick just loves smoothies haha"
• @graves says "Note to self... don't try to buy Rolo's again from the vending machine"

Oh, you'll read about politics and boyfriends and kids soccer photos and Brett Favre and wars while going through employee tweets. Maybe you are more than happy to allow your employees to share their lives with your customers. Maybe this is shocking to you, and represents the absolute last thing you'd ever do, maybe you think this represents a branding catastrophe.

Remember what we talked about on Monday? When I run Multichannel Forensics and OMS analyses for clients, I continually see that interaction with humans leads to customers with increased long-term value.

Clearly, we focus on channels, like Twitter. But this has nothing to do with Twitter or Social Media or marketing channels. It has everything to do with human beings pleasing customers. What can we learn from their style of human interaction that we might be able to leverage?

OMS: Merchandise Mix

If you'd like to follow along, please send me a message via e-mail, and I'll send you a copy of the spreadsheet.

Today we're going to talk a little bit about the role that merchandise mix plays in a business. Our online businesses are often managed by campaigns and landing pages. We execute offline campaigns (catalogs or direct mail or whatever works for you), and we execute a ton of online campaigns.

On average, we don't care what sells nearly as much as we care about the campaigns that work. We optimize our business based on the campaigns that deliver an acceptable return on investment.

But what happens when we cause customers to buy a different set of merchandise? In other words, does the future of the business change if I influence the merchandise that a customer purchases?

Give this a try. Zero out cells C5 - G5. Zero out cells B101 - B340. Enter "1,000" into cell B130.

Notice that these customers love Merchandise Department 11. After five years, they still spend more than half of their money in this department. After five years, the customers who stay active purchase 2.6 times a year, purchasing 2.9 items per order at $80 per item.

Now zero out cell B130, and type "1,000" into cell B136. These customers love Merchandise Department 14, but these customers are at least a little bit more willing to shift their money across other departments. After five years, the customers who keep active purchase 2.6 times a year, purchasing 2.6 items per order at $105 per item.

This is a tame example, one where the customer is fundamentally different, but the outcome after five years is not dramatically different.

That being said, it's a good thing for you to pay attention to this trend. Are your keywords causing you to acquire customers who have a preference for only a specific item or set of items, causing you to not achieve the long-term potential you'd like to achieve? Do your e-mail campaigns influence the merchandise preferences of your customers?

Dear Catalog CEOs: Dominate The Competition

Dear Catalog CEOs:

It's October. This is the time of year when I get a lot of Multichannel Forensics project requests from CEOs asking to see where sales are headed over the next two or three years. Based on the analysis, online marketing budgets and catalog marketing budgets are adjusted accordingly.

When we do this type of work, we sometimes step out of strategy, and into a discussion about tactics.

• "What happens if we go from 148 pages to 140 pages per catalog?"
• "What happens if we pay only for branded keywords?"
• "Can we increase sales by 10% by using Social Media?"
• "Will our customers be angry if we go from one e-mail campaign per week to two?"
• "What can we do to immediately improve our conversion rate from 5% to 6%?"
• "Should our standard 20% off promotion be changed to 25% off?"
• "If we do free shipping all year, will we be out of business?"
• "How can we motivate Abacus to get us a better list of prospects?"

Across all of my projects, two things consistently rise to the top among high-performing companies, two things that allow companies to dominate the competition:

1. A disproportionate focus on merchandise. The companies that succeed have a passion for offering customers outstanding merchandise. This passion spills over into marketing --- the focus isn't on the promotion or the channel, but rather, the key items that a prospect might love, or the merchandise that loyal customers crave. You'll hear more talk about merchandising events than about free shipping events, more talk about launching new products than about launching a new Twitter presence.
2. An appreciation for human beings.

Let's focus on #2, an appreciation for human beings, because #1 is self-evident.

I've yet to work on one project where any customer segment that interacted with a live human being didn't experience increased long-term value.

Allow me to repeat the statement. I've yet to work on one project where any customer segment that interacted with a live human being didn't experience increased long-term value.

Customers who use the telephone to place an order outperform customers who use your website to place an order.

Customers who interact with live chat outperform those who simply enter their items into the website and complete their order.

Customers who interact with store associates outperform those who interact with technology.

Customers who work with a talented sales force outperform those who simply order from an e-mail campaign or a catalog.

If we truly want to dominate our competition, or at minimum become more profitable, we might want to focus more effort on how our customers interact with human beings.

Increasingly, it appears that by embracing the internet, we removed humans from the merchandise/customer relationship. Each time we removed a human, we lowered long-term value. And as long-term value declined, we added discounts and promotions to make up for lost sales, which further eroded gross margin and profitability. And as profitability declined, we added additional automated channels (search, affiliates, e-mail), further removing the customer from human contact. It becomes a cycle that's hard to get out of.

In no way am I saying we shouldn't do search or affiliate marketing or e-mail marketing or catalog marketing.

What I am saying is that we need to find a way to inject human beings back into the equation. If we want to dominate the competition, we can simply add helpful and pleasant people back into the purchase process. A mechanical free-shipping offer from a computer is nice. A phone call or personalized e-mail message from an actual employee telling the customer that the new merchandise assortment will be available on Monday online and via catalog, but the actual employee will help you pre-shop the assortment via a micro-site on the Friday before it is available to the public will provide a completely different level of loyalty.

If you want to dominate the competition, give human beings a chance!

Gliebers Dresses: Jewel Tones

Time for our weekly peek into the world of Gliebers Dresses.

Glenn Glieber (Owner): "... no, I don't want real cheese and meat and scallions and sour cream and salsa on my nachos. Nachos are all about fake cheese, in fact, those who serve nachos must offer a bonus serving of fake cheese on the side. The right way to make nachos is to generously drizzle a scalding hot ladle of fake nacho cheese on the chips, and then offer a side of fake nacho cheese in a small plastic container. No other toppings are necessary, folks, the chips and fake cheese should stand on their own merits."

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

Kevin: "Yup, it is me."

Meredith Thompson: "Kevin, here's our question. Does creative matter?"

Kevin: "Define what 'creative' means to you?"

Meredith Thompson: "The way that merchandise is presented to the customer."

Pepper Morgan (Chief Marketing Officer): "We all watching 'Dancing With The Stars', I mean, not only us here at Gliebers Dresses, but at home, too ... Sonora and Sedona hold up their scoring paddles along with the judges while hubby burns the midnight oil at work. Anyway, you probably noticed how jewel tones recently took over the show. I'm looking through the catalog, and I realize that we missed the trend. We offer the product, but we missed the entire fall color palette in print. So I want to re-shoot everything online to reflect what's hot. We need to re-merchandise our landing pages in order to make a statement that is congruent with what they're doing on 'Dancing With The Stars'."

Lois Gladstone (Chief Financial Officer): "And I'm saying we don't have the money to re-shoot everything. We have a profit and loss statement to protect. Our scarce resources are funding our loyalty program right now. I'd rather fund customer loyalty than the whim of a Creative expert who thinks we missed the color palette."

Pepper Morgan: "Merchandise and our color palette create customer loyalty. If we don't have the merchandise, and we don't present it right, we don't have a business. This isn't a whim, this is my expert opinion."

Roger Morgan (Chief Operations Officer): "I was at work late a few nights ago going through every single white paper and research document I've ever purchased. You know what? I've yet to find a single research company, blogger, or industry conference that is willing to say anything about creative, so it must not matter much, or somebody would be trying to make money off of it, right? From what I heard, Facebook and Twitter and Personalization were the big topics at Shop.org, not the dress color that is likely to turbocharge conversion rates. We need to focus on strategy."

Meredith Thompson: "Here's the thing. Chip Cayman blasted us at Shop.org last week for being, if I recall the quote, 'lumbering fools at the tar pit of extinction'. Well, we're trying to be nimble here, like those online folks, and we're going to say we cannot spend money re-shooting product?"

Lois Gladstone: "Isn't it both of your jobs to know what the fashion trends are before the season starts? I trust you to do that, and you need to trust me with our budgetary constraints. The customer doesn't care what color we depict online or in catalogs, as long as all colors are available. I sure don't care."

Kevin: "Let's not focus on the things that divide us. Can we all agree that we want to make more profit? Can we all agree that we need to be responsive to changes in customer preference? Can we all agree that we need to minimize expense? Can we all agree we need to be nimble and flexible? Can we all agree that we'd prefer it if all marketing strategies were free?"

Glenn Glieber: "I love free marketing!"

Kevin: "But this doesn't have to be an all-or-nothing issue. Pepper, identify the twelve best selling styles that you perceive we have a color palette issue with. Randomly choose six of the items to be re-shot. The other six items are not re-shot, this represents your control group. Now put the test images up on the website for a week, and measure clicks, conversion rate, and sales for the test and control group. After a week, compare the two sets of items, and see which set worked best. Jewel tone items must outperform existing creative, and if they do outperform existing creative, Lois can run a profit and loss statement to see if it pays to re-shoot everything."

Roger Morgan: "That's complete garbage. You cannot tell anything from twelve items. And in the catalog, we've already depicted the items a certain way. So the test is not valid, we'd have to test the color palette in the catalog as well in order for this to be a fair test, and we simply cannot react that fast --- we could impact the February catalog at earliest. So your test design fails to measure anything."

Lois Gladstone: "And I don't think you have a big enough sample size, either. One week isn't long enough to run the test."

Pepper Morgan: "Lois, could you volunteer a test design and measurement strategy that would meet your needs, and oh, by the way, can you back up your opinions with actual statistical theory? What is the math that supports your disenchantment with the test design?"

Lois Gladstone: "I don't need to back up my opinions with math, I just think the test design stinks. I don't agree with it, and I don't want to waste money re-shooting any items."

Pepper Morgan: "It'll cost us less than a couple thousand dollars to re-shoot this stuff. It's a cheap test. Isn't this what web analytics and website optimization is all about? Everybody was talking about this style of testing at Shop.org last week, heck, Amazon is doing optimization testing every time you refresh your browser."

Lois Gladstone: "We're not Amazon, Pepper, their executional strategies won't work at a leading fashion apparel brand."

Kevin: "Glenn, I laid out a test design that answers the strategic question for very little cost. It's been my experience that creative treatment can have a plus or minus twenty percent impact on items sales, so I think this is worth testing. Your thoughts?"

Glenn Glieber: "Run the test, we're not at the tar pit of extinction around here, we're a learning organization! Now let's move on to the next topic. If you're really interested in good nachos, the Shell station on 27th Ave. has a great deal, just $2.99 and you get to pump all the free fake cheese you want onto your heaping serving of chips."