Netflix: Classic Multichannel Forensics

You have to love Multichannel Forensics when you consider the case of Netflix v Blockbuster, don't you?

Best of all is the fact that DVD rentals are down 25% year-over-year, while streaming of movies is up from 37% of subscribers to 60% of subscribers this year ... and oh, by the way, subscribers are up 50% year-over-year.

So many of us in the catalog industry failed to capitalize on disruptive technology. We were completely misled by a vendor industry pushing a multichannel platform that protected their business, not our business. As a result, we kept mailing catalogs, hoping the catalogs would cause customers to buy online. We failed to resonate with an entire generation of folks, who are now age 40 and younger, representing a huge cohort (especially under the age of 30) that the cataloger simply can't easily reach.

And now, we have a generation of e-commerce experts who are about to make the same mistake with mobile. The analytics folks are saying that you are best off using old-school web analytics software with modifications to analyze how mobile and social yield a customer with "multichannel" characteristics. Does that story sound familiar? The story is percolating everywhere, folks.

You wonder if disruptive technologies are best utilized in an independent manner, not an integrated manner. The catalog generation tried hard to integrate old-school techniques with the web, without success. Retailers tried to integrate the web experience with stores, but didn't factor in how heavy debt loads in retail would cripple the retail experience with a small drop in same store sales. And now, the e-commerce generation gets ready to take on mobile. Will the mistakes be replicated?

ECMOD 2010 London

About 15% of MineThatData Nation joins us each day from Europe. I sincerely appreciate our European followers ... blog posts are purposely published in the evening here in the Pacific Northwest so that our European friends have fresh content first thing in the morning!

Now our European friends can get fresh content live, in person. The kind folks at the ECMOD conference have invited me to share information on two different topics.

• 35 Things Catalogers Can Do To Improve Profitability Tomorrow Morning.
• Effective Matchback / Allocation Strategies And Methodologies.
  

Here's a press release for the conference.

Here's a link, follow it and register for the conference now ... what's better than London in early October?

And follow the good folks at ECMOD on Twitter!

Glibers Dresses: Something In My In-Box

From: Pepper Morgan [mailto:pepper.morgan@gliebersdresses.com]

Sent: Wednesday, August 4, 2010 9:37 AM

To: Kevin Hillstrom

Subject: Any Interest In Helping Us?

Kevin:

It's been a long time since we chatted!

I just wanted to let you know that Brandon Templeton, our CEO, was fired on August 1. We were surprised that he was fired, we were not surprised why he was fired.

He wasn't a big fan of our "catalog" mindset, and he was so confident of the future of marketing that he decided he was going to go "all in" during the month of July. He decided that we would not mail our early July sale catalog, and that we would not mail our late July fall preview catalog, and would instead focus our marketing activities on social media and the new iPad and Android apps that Roger created.

Needless to say, sales tanked, and our parent company freaked out. By the end of July, sales were 50% below plan.

Of course, our team viewed this as a validation of the catalog business model. Meredith was absolutely energized by the results, she crowed in meeting after meeting about the importance of what she calls "spread merchandising", the idea that catalog spreads tell an important brand story.

I viewed this in a different way, and my way of viewing this appears to be a bit unpopular. I told the team yesterday that 50% of our sales did not disappear, and that company profit in July was on plan. Lois claimed that we held on to our sales because of her free shipping based loyalty program, but there is more to it than that, isn't there?

I mean, we basically stopped marketing to the customer, and 50% of the sales still happened. We know that free shipping gives us a 10% bump, so this means that customers kept shopping because of e-mail marketing, because of search, because of our apps, because of our social media strategy, because of our loyalty program, and because of brand loyalty.

Do you have other clients who identified this dynamic, where you stop mailing catalogs and you still keep 50% of your business? And if that is the case, what is their response? Do they increase online marketing spend? Do they spend more money in offline marketing? Do they increase their social media presence? Do their apps actually drive sales increases? How do they staff themselves in order to capitalize on this type of outcome? What happens to the 72 year old female shopper who mails her order in an envelope, with a stamp and a check? Would you be willing to share what you know with us via Skype, I'll pay you for your time out of my budget? Are you available next week?

I hope you are enjoying summer. Sonora is off at summer camp at Lake Winnipesaukee, so I'll see here again around August 15.

Meredith and I were talking the other day that we miss having your thoughts in our Executive meetings. We didn't always agree with what you said, but we agree that you made us think. Roger, on the other hand, well, he probably wouldn't be happy that I'm contacting you. He thinks he can run this place, he's making a bid for the CEO job, and he strongly believes in a multichannel mix of traditional marketing and online marketing, coupled with MBA-style business experience. He's asking the parent company for an opportunity to run the business on a temporary basis, he wants an opportunity to demonstrate his skills.

Thanks,

Pepper

Bricks 'n Clicks: Barnes & Noble

If all of the multichannel bricks 'n clicks strategy of the past decade was so prescient, then Barnes & Noble should have beaten Amazon and Wal-Mart and Apple into submission, right?

That didn't happen, and now B&N is for sale.

A generation of marketers were trained to believe that a theory was reality. I've been in meetings, too many to count, where the Executive shares all of the theories about why a bricks 'n clicks or a multichannel strategy that includes paper will trump new technology. The slides are shared, slides that suggest that customers want to do research online or via paper, and then get in a car and fight traffic for 17 minutes in order to complete the transaction, sales tax included. It's a theory supported with misleading data.

Always trust customer response over vendor/consultant theory. Most important, do your own Multichannel Forensics analysis, and teach yourself how your customers prefer to shop!

Testing: Half-Life

It might be the most asked question I get, and for good reason ...

Question: "Kevin, what the heck are you talking about when you say that you shouldn't test something that has a short half-life?"

First, let's define half-life ... go to Wikipedia for your answer!

Now let's view this from a testing standpoint. Maybe you want to test a big green "sign up now" button instead of a small blue "click here for more information" button. You run a test, and you learn that the big green button improves conversion rate by 34%.

Do you assume that the big green button will outperform the control by 34% forever?

If you are measuring "half-life", you are measuring the amount of time that it takes for the 34% lift to become a 17% ... or worse, to become a 0% lift.

So often, we test concepts that either have minimal half-life, or are only valid for the time/audience when they were tested. In other words, the concepts we are testing are fleeting in nature, they have no staying power.

There are concepts that have significant staying power. In apparel merchandising, you know that women buy merchandise for men, so you can improve conversion (online) or reduce expense (offline) by exclusively advertising womens merchandise. This has a half-life just shy of infinity, you'll be more profitable for the duration of your career by testing strategies that capitalize on this well-known fact. We don't read about these strategies and test findings, because the strategies are so profitable that they yield a significant competitive advantage to the folks who possess the knowledge.

Many concepts have minimal staying power, and, by definition, minimal half-life. We read about these strategies and test findings all of the time, because these strategies have a short half-life, rendering their competitive advantage only to the audience that saw the message during the timeframe when the test happened.

This is the phenomenon I refer to when I mention "half-life" in my writing. The best way to determine if you have a half-life issue is to re-test your strategy three months, six months, or twelve months later, observing if you still have a meaningful lift over your control group.

Summer Segmentation: Employee Orders

If your database allows you to do this, I'm begging you to do this ... create a segmentation variable for employee orders.

Then, sum employee demand for the past twelve months. Compare that sum to the sum of employee demand from 13-24 months ago, 25-36 months ago, 37-48 months ago, etc.

Go to your human resources department, and ask how many employees you had during each time period. Then calculate demand per employee.

Trend demand per employee by year. What does the productivity of your employee base look like? Is it correlated with the number of twelve month buyers you have? If sales are in decline among your employee base and among your customer base, then ask your employees why they won't buy the merchandise??!!

I did this experiment once ... my marketing department was being pummeled by management for not "promoting the brand". So I summed employee demand among all employees Director and above, showed that demand was in decline, then asked this employee set in a meeting why they were choosing to not spend as much with our brand, after all, marketing should be irrelevant to them, they live and create the brand.

Yes, the room got really, really quiet.

Employee orders are the analyst/marketer's best friend. You can cut through a lot of garbage and get down to the core issues associated with merchandise productivity by demonstrating that the Leadership team is / is not buying the merchandise.

Dear Catalog CEOs: The Secret of Page Counts

Dear Catalog CEOs:

I, too, remember a day when a 600 page catalog represented a welcome arrival in the mailbox.

Today, the 600 page catalog is called "your website". The catalog, for those under the age of 55, represents a vehicle that "creates demand".

So if the job of the modern catalog is to "create demand", then one might think that we should try to optimize the size of the catalog, so that we can reach the largest audience as possible at the lowest possible cost.

I know, this flies in the face of everything we've been taught. The printing community and the USPS push us toward optimal page counts, and discourage small catalogs. We're enticed to add four or eight pages to achieve "efficiencies".

Why isn't our goal to achieve "the most profit"?

Every company can identify the relationship between page counts and demand, heck, I do this for clients every week.

Take this example, for instance. A business has a 124 page catalog, and is looking to mail the catalog to outside lists. Last year, the catalog $1.4 million in demand and generated 13,987 responses.

If you assume that 70% of the demand can be achieved on 50% of the pages (these days, you can often achieve 80% of the demand on 40% of the pages or you can do even better), then we can estimate what might happen with 56 pages.

We can simulate the outcome of the 56 page catalog, and in most cases, the smaller catalog is going to outperform the bulky, bigger catalog, regardless of how the smaller catalog is merchandised.

Here, we increase reach, from 600,000 customers to 1,650,000 customers. What's not to like about that, folks?

Here, we increase demand from $1.4 million to $1.9 million. What's not to like about that?

Here, we increase total responses from 13,987 to 19,878 ... isn't that the goal of acquisition marketing?

Here, we increase profit from $62,000 to $78,000. You just paid for a portion of your annual salary!

Oh, I can hear folks howling already ... "if you don't advertise the item, the customer won't buy the item, so I need to present everything in my catalog."

Horsefeathers!

Why not advertise the best-selling items, and then direct the customer online for your full merchandise assortment?

The secret of page counts is that "smaller is better". Your printer and the USPS will encourage you to go bigger. I can profitably demonstrate that you can "go smaller", and I can help you grow your business in the process while going smaller. Your list vendor and your co-op will sincerely appreciate your new strategy.

If you want help running the simulations, I am available and ready to assist you ... the whole exercise takes an hour, or less!