Gliebers Dresses: They Keep Coming

From: Meredith Thompson [mailto:meredith.thompson@gliebersdresses.com]

Sent: Wednesday, August 18, 2010 10:55 AM

To: Kevin Hillstrom

Subject: How Are You?

Dear Kevin:

Remember me? It's Meredith. Meredith Thompson! How the heck are you doing? I heard that you are working with some footwear company on some random island on the West Coast, what is that like?

I don't know if you heard the news or not. Brandon Templeton was fired as CEO of Gliebers Dresses a few weeks ago. He had this "all-in" strategy, I guess he liked playing Texas Hold 'Em or something, and decided that we had to go "all-in" and completely abandon our catalog marketing strategy. We went "all-in". And now I am "all-in" when it comes to a liquidation strategy because we missed our sales plan by 50% in July.

Was the kid a knucklehead? Absolutely. Was the kid trying to push us into the future? Probably. We fought this kid every step of the way, doing everything possible to make sure that the kid didn't kill our beloved catalog.

You have to understand, Kevin, that we love catalog marketing. I can't think about merchandising a landing page, that's boring, who wants to do that? Now, when it comes to putting together sixteen pages that tell the story about why a sundress is vital to the summertime lifestyle of a 58 year old woman, well, that is something I know about, I have a passion for this style of marketing and merchandising.

This new generation of "digi-dudes" as I call them, well, I'm not certain what they have a passion for. They batter old-school marketers like me, but they seem completely inept when it comes to creating demand. Sure, anybody can do an A/B test on a landing page to determine which style of creative generates orders more efficiently, but can these digi-dudes create the demand that sends a customer to a landing page? I doubt it. I sincerely doubt it. A generation of marketers are losing the battle on demand generation. Our kid-wonder former CEO learned this lesson the hard way. You can have apps for the Android platform, for the iPad, for the iPod, for the iPhone, for Blackberry, for Raspberry for crying out loud. How the heck do you tell customers to go and download the app? I mean, honestly, should we expect a couple hundred thousand twenty-nine year olds to virally share the fact that we have a series of apps with their closest friends?

Brandon didn't have an answer for that.

I'll use the catalog to create demand. Until somebody comes up with a better idea, I'll use the catalog to create demand. There is no such thing as multi-channel marketing without the demand generation provided by catalog marketing. E-mail sure doesn't count, though to be fair, it is better at generating demand than an app for an Android phone. Banner ads? Please. Re-targeting? Who wants to be stalked online? The catalog, now that thing creates demand!

I'll wrap this up, now. I sure wish somebody would bring you in here to spend some time with us. Roger is making a pitch to be interim CEO. The last thing we need is a daily essay on insights from Woodside Research. We need somebody who is practical enough to know that the past is still relevant, while pushing us to test new strategies. Almost everybody we know is good at one or the other, we need somebody good at both old and new. Who might you recommend to be our CEO? Is there anybody out there who might be willing to lead us? Let me know your thoughts.

Best,

Meredith

Summer Segmentation: Primary and Secondary Channels

Sometimes you have too many marketing channels. A customer could receive a postcard in the mail, then visit your website via paid search, then purchase via an affiliate.

You could credit this order to the affiliate (last touch). You could give credit to the postcard for creating demand (matchback). Or you could allocate the order 1/3 - 1/3 - 1/3 to each channel (attribution). Hint: There isn't a right way to do this, there are only wrong ways to do this. You cannot get in the head of the customer and ask her brain to properly allocate the order, can you?

Ok, you've done your best to allocate the order. Now you have to record the order in your database. Is this an offline customer (buys via postcard), or is this an online customer (buys via an affiliate), or is this a search customer?

In your database, you can set up "primary" and "secondary" channels. The "primary" channel might be the affiliate, since that is the actual marketing channel where the customer placed an order. You can also give full credit to the postcard as a "secondary" channel, and to search as a "secondary" channel.

Once a customer purchases for a second time, you begin to get a clear view of the preferred "primary" channel, and you begin to get a clear view of the preferred "secondary" channel.

Among customers who have purchased 2+ times, segment customers based on their favorite "primary" and "secondary" channels. This will give you better insight into what the customer is likely to do in the future, allowing you to better allocate marketing dollars as appropriate.

Dear Catalog CEOs: Modern Catalog Contact Strategy

Dear Catalog CEOs:

Many catalogers are using the same contact strategy that was employed sometime in the late 1980s. We structure our businesses around the contact strategy, staffing to the level of contacts that we pre-authored twenty or more years ago.

And we like "big" contacts, don't we? The printing vendor community provides efficiencies for having bigger page counts. The USPS provides efficiencies for having specific, larger page counts. Our merchants demand larger page counts so that the entire merchandise assortment can be presented to the customer.

All of these activities work against the behavior of the modern customer.

The modern customer (under the age of 55) is going to buy online, regardless whether you mail catalogs or not. We always over-state results by adding orders to catalogs that would happen online anyway, with or without a catalog mailing.

Beyond that, however, we fail to properly analyze page counts.

Here's an example that I run into every day. A company has a 148 page catalog that generates $2.50 when mailed to the average housefile customer.

• Pages = 148.
• Cost = $0.74.
• Demand = $2.50.
• Profit = $2.50*0.35 - $0.74 = $0.14.

In this situation, we'd mail the catalog, heck, it was profitable, right?

Let's try something different. Let's create a 64 page catalog, editing out only the best sellers from the 148 page catalog. The cost of mailing the catalog, on a per-page basis, is 15% more expensive. We'll use the square root rule to estimate demand at (64/148)^0.5 = 66% of the 148 page catalog:

• Pages = 64.
• Cost = $0.37.
• Demand = $2.50 * 0.66 = $1.65.
• Profit = $1.65*0.35 - $0.37 = $0.21.

What is so interesting about this is that few folks will actively create the smaller catalog, even though it is more profitable. And among folks who do create the smaller catalog, people will circulate the larger catalog to break-even, and then will transition to the smaller catalog.

Why toss so much profit into the dumpster?

Even better, why not create a targeted version of the smaller catalog? Put in the best product within one merchandise division, and send it only to customers who previously purchased from the merchandise division? When you do this, productivity often increased by 20%.

• Pages = 64.
• Cost = $0.37.
• Demand = $2.50 * 0.66 * 1.20 = $1.98.
• Profit = $1.98*0.35 - $0.37 = $0.32.

This ends up being the most profitable version!

A modern catalog contact strategy will include many small catalogs, with targeted merchandise sent to a targeted audience. The days of a larger catalog mailed to the entire audience are over, it is an unproductive way to generate mediocre levels of profit.

Contact me now to obtain an evaluation of your contact strategy!

Gliebers Dresses: Didn't Expect This E-Mail

From: Roger Morgan [mailto:roger.morgan@gliebersdresses.com]

Sent: Wednesday, August 11, 2010 6:03 AM

To: Kevin Hillstrom

Subject: Robotics

Kevin:

We haven't chatted in a long time, so I thought I would reach out to you. I hope you are doing well.

I understand that you have been working with a company on the west coast that is making good use of robotics in the distribution center. Would you be willing to share with me what this company is doing, how they are doing it, what it costs, and what they perceive the competitive advantages are of their robotics system? Our budgets are tight, so we're not going to pay you anything for this, we just thought maybe you'd be willing to spend a half-day or so jotting down your thoughts, you know, something that doesn't take too much time. Thanks in advance for your help, we appreciate it.

You might have heard that Brandon Templeton is out as CEO of Gliebers Dresses. This certainly isn't a surprise, I mean, this guy violated just about every best practice in the book in his quest to, as he would say, "modernize marketing". Woodside Research recently published a report that suggests that, by 2013, customers will hold up to six mobile devices at one time while leveraging offline marketing and e-mail marketing to make purchase decisions, requiring marketers to be nimble, sophisticated, and savvy at using multiple channels in a synergistic manner. Clearly, Mr. Templeton didn't read the research report, or he wouldn't have decided to obliterate our catalog marketing program in a short-sighted attempt to demonstrate the viability of emerging channels.

I am hoping that you might be able to assist me. Fitz Gleason, the gentleman who owns Gleason Investments, our parent company, is actively searching for our next Chief Executive Officer. As you already know, it sometimes takes a long time to find a viable Chief Executive Officer ... Woodside Research states that the average time it takes for a company to find a CEO is about eight months. I would like the opportunity to showcase my talents to Management. I would like to become the Interim CEO, and with luck, I could demonstrate that I deserve to be the permanent CEO of Gliebers Dresses.

You are already familiar with my strong strategic mindset. Nobody is going to come to the table better prepared than I am. I challenge any operations leader to match my knowledge of multi-channel marketing. You know as well as I do that it is critical to subscribe to and purchase the papers issued by all of the leading research organizations. Though I haven't been given the opportunity to run a marketing program, I possess a thorough knowledge of all multi-channel marketing best practices. Heck, I know why it is important to optimize the number of pixels in an e-mail pre-header. I've read Seth Godin, so I know how the lizard brain fights against making strategic changes to a marketing organization.

Outsiders might suggest that I don't have the merchandising experience necessary to grow a business like Gliebers Dresses, but I disagree with that point of view. Neptune Research suggests that merchandisers that will win in the future source product in a nimble and rapid manner, responding to customer demand in real time. I believe I can move our organization in this direction in a frictionless manner.

Anyway, I am hoping that you would be willing to call Fitz Gleason and put in a good word on my behalf. I know that you are respected in the industry, so I am confident that your thoughts would go a long way toward helping advance my career objectives.

Let me know when you have had a chance to speak with Mr. Gleason. I am heading to Lake Winnipesaukee for the weekend, I will be available next week if you have any questions.

Thanks,
Roger Morgan

The iPad & Mobile

Last week, I purchased an iPad.

This week, I view the world in a different way. I read books via the Kindle App, a better experience than reading a physical book ... heck, I can see areas in the book where other readers highlighted important facts. The Weather Channel App is fantastic. I can search any radio station in America that is playing a certain song using the TuneIn App, hop on, and listen to that song, or I can play my entire music library on the device. I can use the device as a mobile GPS platform with the 3G connection. I can listen to my hometown radio station while traveling. I can watch a streaming movie with the Netflix App.

Of course, it's the user interface that makes the iPad and the coming onslaught of competitors different. As if a page was taken out of the movie Minority Report, your finger becomes the mouse. The "app" fuses a computer program with easy website navigation.

Many of you are reading this and saying "duh" ... you've owned an iPhone for years, you know all about this.

Many of you are reading this and saying "boring ... the iPad is a clumsy laptop, I can do all of that online right now, the iPad is an expensive and functionless toy."

I will say this. If you perceive the device to be different, then the device is different. And that's all that matters. Folks who view the device as being different create apps for the device that are different, or use apps in a way that is different from the traditional web experience.

As Ben Stiller said in "Night at the Museum", "... there's a storm comin', buddy."

A whole chunk of the e-commerce / online channel is getting ready to break off, sort of like the giant iceberg that broke off of Greenland this week.

There are ramifications.

If you are an e-commerce brand, how do you decide which of your 12,000 skus deserves to be featured in an app? Or does the app even bother focusing on the best 1% of skus, instead seeking to solve a customer problem over selling the customer merchandise?

If you are a publisher that makes money from selling ads, what do you do when you lose 30% of your homepage traffic to an app that does not monetize ads as effectively?

If you are Barnes & Noble, what do you do with debt-ridden stores that house paper books when a third of your former store customer base is using the Kindle or a Kindle app on the iPad? Even if you have your own device or you have your own app, you still have to cover the costs of your debt-ridden stores ... right? How do you do that?

If you are a web analyst, do you try hard to be an expert at analyzing what happens at http://www.weather.com, do you become an expert at a new generation of software that will inevitably appear to analyze mobile transactions, or do you become an expert at analyzing how all online and offline channels fit together? It's a relevant question, one I hope you are spending time pondering.

If you are an e-mail marketer, do you optimize a channel that is in slow decay? Or do you jump into mobile and be the "conduit" between old-school marketing tactics and apps?

If you are a catalog marketer, do you focus on harvesting every last penny out of the 64 year old Upstate New York customer who loves to shop via paper in the mailbox? Do you spend the 15 free minutes you have each day fussing over whether the model on the back cover of the catalog is 'brand appropriate', or do you lead your company into the future by creating the most innovative publishing/magazine app that conveys all of the subtleties of merchandising/creative that are utterly absent from modern e-commerce?

I have no idea how all of this will turn out. I can only see, from my experiences, that I've changed ... and I've had the device for a week. What happens when 40 million households have a similar and far more affordable device?

As Ben Stiller said in "Night at the Museum", "... there's a storm comin', buddy."

Summer Segmentation: E-Mail Response

If you want to have some fun, create two variables in your database.

1. Recency of click-through from an e-mail campaign.
2. Recency of purchase after clicking through an e-mail campaign.

You'll find that those on your e-mail list that don't record activity in either variable in the past twelve months have very little value ... to the e-mail channel.

You'll find that those on your e-mail list that do record activity in either variable in the past twelve months have a different future trajectory than do other customers.

Show of hands ... how many of you have either variable actively coded on your database?

Dear Catalog CEOs: Pages and Contacts

Dear Catalog CEOs:

These days, many of you contact me, hoping that there is a secret to generating more demand with catalog marketing. Can you find better names in our housefile? Can you encourage the co-ops to create better models for us? Is there a list out there that we are missing that would cause our business to grow by 30%?

Sometimes, the answer is right under our nose.

Pretend that you mail a 124 page catalog every month.

Pretend that this catalog, when mailed to an above-average performing customer, generates $5.00 of demand per mailing.

What would happen if you mailed two contacts a month, each contact at 64 pages?

I can already hear folks howling at me. "We don't have the creative resources to mail two catalogs instead of one." "You have to show the entire merchandise assortment or the customer won't buy across the entire merchandise assortment!" "Our customers don't want increased frequency."

Math, believe it or not, can suggest that the strategy might be more productive.

I start with the 124 page catalog at $5.00 per customer. I'll use the friendly "square root function" to estimate what might happen at 64 pages ... (64/124)^0.5 * $5.00 = $3.59.

So, each 64 page catalog will generate $3.59. Now, let's assume that the second contact cannibalizes the first contact by 30%. Therefore, the two contacts will generate $3.59 + $3.59*0.70 = $6.10.

Now, we're getting somewhere! Let's assume that it costs 15% more, per page to mail two 64 page catalogs than it costs to mail one 124 page catalog. Instead of costing, say, $0.60 to mail 124 pages, it will cost (64+64)*1.15*(0.60/124) = $0.71.

Time to run the profit and loss statement. Assume that 35% of demand flows-through to profit:

• 124 Pages = $5.00 * $0.35 - $0.60 = $1.15.
• 64 Pages + 64 Pages= $6.10 * 0.35 - $0.71 = $1.43.

You tell me, which strategy would you rather employ?

Catalog marketing is evolving in very interesting directions. Your best catalog customers, the rural 65 year old woman, for instance, can support more contacts, contacts that are smaller. You marginal customers require fewer contacts --- they are going to shop online now, so a smaller catalog can be used to save expense, increase circulation depth, and still drive customers online.

Contact me now for a contact strategy evaluation. Let's put modern page count changes and contact strategies into practice!!