That Organic Percentage Better Be Right, Right?

My critics lampoon me about the "organic percentage".

• "We provide our clients with the best matchback technology in the world.  That customer would never order without having first received a catalog.  Why did the customer even visit the website in the first place?  It was because the client mailed the customer a catalog.  Your methodology is just plain wrong."

• "You said that the organic percentage is 44%.  How can you even know that?  What if it is 39%?  Then everything you say is wrong.  Unless you nail this thing within one point, I can't possibly support your guess.  Come one, this is too important to be guessing!"

• "You want me to mail my best customers less and reinvest money in customer acquisition?  Are you crazy?  It costs seven times more to acquire a customer than it costs to retain a customer."

The comments are defensive, of course.  I get it.

Some folks think that if the organic percentage is off by a few points, then the whole methodology fails.  That's not the case, and that's a good thing.

Here's an example.  We assume that we mail this customer ten catalogs a year, we predict the customer to spend $40 next year, and we predict the organic percentage to be 44%.  Here's a profit and loss statement, by catalog.

	Catalog	Organic	Total	Total
Catalogs	Demand	Demand	Demand	Profit
0	$0.00	$17.60	$17.60	$6.16
1	$4.47	$17.60	$22.07	$6.97
2	$7.26	$17.60	$24.86	$7.20
3	$9.64	$17.60	$27.24	$7.29
4	$11.79	$17.60	$29.39	$7.29
5	$13.79	$17.60	$31.39	$7.24
6	$15.67	$17.60	$33.27	$7.14
7	$17.45	$17.60	$35.05	$7.02
8	$19.16	$17.60	$36.76	$6.87
9	$20.81	$17.60	$38.41	$6.69
10	$22.40	$17.60	$40.00	$6.50
11	$23.95	$17.60	$41.55	$6.29
12	$25.45	$17.60	$43.05	$6.07

You're currently mailing ten catalogs ... this methodology says that four catalogs is optimal.


Now, let's pretend that I was way off on the organic percentage, and it really is 34%.  Here's what the table looks like:

	Catalog	Organic	Total	Total
Catalogs	Demand	Demand	Demand	Profit
0	$0.00	$13.60	$13.60	$4.76
1	$5.27	$13.60	$18.87	$5.85
2	$8.56	$13.60	$22.16	$6.25
3	$11.37	$13.60	$24.97	$6.49
4	$13.90	$13.60	$27.50	$6.63
5	$16.25	$13.60	$29.85	$6.70
6	$18.46	$13.60	$32.06	$6.72
7	$20.57	$13.60	$34.17	$6.71
8	$22.58	$13.60	$36.18	$6.66
9	$24.52	$13.60	$38.12	$6.59
10	$26.40	$13.60	$40.00	$6.50
11	$28.22	$13.60	$41.82	$6.39
12	$29.99	$13.60	$43.59	$6.26

Let's review the findings.

• You're using matchback technology to mail ten catalogs a year.
• My methodology says you should go down to four mailings a year, and reinvest the money somewhere else (or pocket it, your choice).
• Even if my estimate is off by somewhere around 30%, you should mail six catalogs a year ... and mailing four catalogs, in this scenario, is more profitable than mailing ten catalogs.

I get that some of you in the audience will say "my file will be less strong if I follow your advice, so I won't follow your advice."  That's ok.  But you can reinvest the ad cost in new customers, and even if you lose money on the new customers, you frequently still come out ahead from a profit standpoint.


Most of the time, I underestimate the organic percentage.  That's when fun stuff starts happening!


I understand that you get frustrated by and concerned about this methodology.  It's a methodology that few in the catalog industry endorse.  It works.  And you can be wrong about the prediction of the organic percentage, and you still come out ahead vs. doing nothing.


Questions?  Contact me for assistance.

Inflation and the Organic Percentage

Let's describe what some of your phone calls sound like, over the past sixty days.

Kevin:  Good morning, this is Kevin.

You:  Hi Kevin.  What are you hearing about inflation?

Kevin:  What are you observing?

You:  The cost of everything is going up.  Gas costs more.  Paper costs more.  Sourcing merchandise from China costs more.  L.L. Bean is forcing us to do free shipping, but our tests show that we cannot offset the costs of free shipping via increased sales, so that's another hit to the expense line.  How do we deal with this?  Sales aren't increasing, expenses are increasing so fast, our profitability is being obliterated!

Indeed.  How do we deal with inflation?

I've been harping on the "Organic Percentage" for the past two years, because you are going to have to know this metric in an inflationary environment.

If you don't already know what the Organic Percentage is, here's a definition:

• The organic percentage represents the percentage of sales a customer generates, on an annual basis, that is not caused by marketing activities.

Why is it important to know this percentage?

Well, if your customer is happy to generate 72% of her demand without the aid of marketing, you have a significant opportunity to save yourself a ton of marketing expense when speaking with this individual customer.

Maybe half of the projects I'm being asked to work on this spring have something to do with inflation ... I'm being asked to find customers who are highly organic in nature, so that companies can reduce marketing expense among that audience.

Dear Catalog CEOs: Mailing 48 Month Buyers

Dear Catalog CEOs:

This one comes up a lot.  I'm analyzing customers who last purchased forty-eight months ago.  On an annual basis, you'll mail these customers six times a year.  On an annual basis, I'll measure that you're losing $2 of profit (per customer) mailing these customers.  On an annual basis, I'll find other customers (those who last purchased 33 months ago or 42 months ago or 61 months ago) where you are losing a boatload of money.

On an annual basis, I'll calculate that 50% of the demand generated by this audience is "organic", generated without the aid of catalog marketing.

On an annual basis, I'll find you a half-million or a million dollars of profit, by cutting way back on the number of catalogs you send to this audience.

And that's when you start to howl at me about my recommendation!

• "It's foolish to get a little more profit.  We need to mail these folks, or maybe they won't ever come back" (ignoring that I just said that half of their demand happens anyway if you don't ever mail those customers again).
• "We like losing money here because it is cheaper to lose money here than to acquire a new customer by renting names from Abacus" (we like losing money?).
• "If we don't mail these customers, we'll have a weaker housefile three years from now" (remember, half of these customers buy without mailing catalogs, take your savings, and go find a new customer ... now your file is growing, not shrinking).
• "Online customers aren't very profitable, we need to keep mailing these loyal catalog buyers" (remember, this customer hasn't purchased in four years, just exactly how loyal is this customer?).

There are a lot of days when I wish it was 1991 all over again.  Back then, you could mail a 48 month customer, because the customer had no other way to purchase from you.


In 2011, the world is very different.


After excluding the 65+ rural customer, your customer base always has the opportunity to visit your website and purchase something.  Why do you view this as being a bad thing?  

Instead of mailing 148 pages six times a year to a customer that has almost no chance of buying, why not craft a strategy that saves 75% of the ad cost, maintains 85% of the purchases, and increases profit?

• Eliminate 148 page contacts.
• Add 48-64 page contacts.
• Properly account for the "organic percentage" ... ignore flawed matchback results by executing proper mail/holdout tests.
• Increase profit.

We don't need to apply rules from 1991 when evaluating 48 month buyers in 2011.  Modernize the process!


Or hire me, and I'll help you modernize the process, increasing profit as well!

Passed Over For A Promotion

I'm willing to bet that all of you have, at one time or another, been passed over for a promotion, right?

This is a situation that the CEO deals with in Gliebers Dresses: Catalogs on Trial (Amazon Kindle, B/N Nook, $0.99).  An obviously qualified candidate is compared to outside talent.  Who will be promoted?  Will internal staff be passed over for a promotion?

Corporate America is one big tournament, a pyramid scheme of sorts.  At one point in my tenure at Nordstrom, I was responsible for twenty-four individuals.  I was a VP, I had three Directors, with twenty folks of varying experience and titles reporting into the three Directors.

Twenty individuals fighting for three Director positions.

Three Directors fighting for one VP position.

Life isn't fair.

I came into Nordstrom from the outside.  And I was ultimately finished at Nordstrom by somebody who was hired from outside the company.

In other words, many deserving folks were passed over for a promotion when I was hired, and may folks were passed over for a promotion when it was my time to move on.

And when I got to Nordstrom, I brought with me a significant amount of outside talent.  When I was given broader responsibilities two years later, I did the opposite --- I took advantage of internal skills that I felt were sufficient to do the job.  Each situation is unique.

In an effort to boost "engagement", why not use the comments section of this post to discuss how you make decisions to promote people?  And if you've been passed over for a promotion, how did you deal with the pain associated with the decision?  Discuss!

Printers, Paper Reps, Print Production, and Innovation

A couple of times a month, I get into the topic of small catalogs with potential clients.  I'll get a call from a CEO or EVP who is fed up with rising paper costs, and is terrified about what will happen to the USPS.  The caller asks me what to expect from a demand standpoint if pages were reduced, from 96 to 88, for example?

That's the point where I mention that the caller could get 80% of the demand on 35% of the pages ... in other words, the caller could mail a 36 page catalog of best products, harvest the majority of demand, and be much more profitable, allowing the cataloger to mail twice as deep into the file or into prospect lists, growing total demand and orders vs. a 96 page catalog.  

I only bring this up because I've seen it happen, many times, successfully ... 12 pages, 24 pages, 36 pages, all sorts of different page counts.


I would not recommend smaller, quirky page counts unless I've measured an increase in sales and profit that exceeded a typical 64 page, 96 page, 128 page, or 192 page catalog.


After asking the question, I brace myself for the response ...


... "but our printer tells us there are efficiencies that make a thirty-six page catalog too expensive to mail.  And our paper rep can get us into other products that reduce costs.  So I would never do that.  Let's keep this real, Kevin.  Please tell me what happens if I go from 96 to 92 pages, or 96 to 88 pages?"


In a rational world, would operational considerations dictate the best marketing strategy for a customer? In a rational world, wouldn't you be willing to eschew best practices in favor of testing a different strategy?


Mind you, printer/paper reps aren't forcing you to do anything.  They are simply offering incentives for you to do what is best for them.  These aren't mean people, they're kind people, they're trying to help you save a few bucks.


But it's not about them, it's about what is best for your customer, and your shareholders, right?


Over and over again, I watch print production teams at leading catalog brands hold back innovation, while genuinely doing what they think is best for the business.  It's not really their fault, it is their job to save money, so they are going to side with vendors, who are also doing their job, by trying to save you money.

It is time for us to demonstrate some leadership.  Paper and postage are going to kill us, next week, or next decade ... the day of reckoning is unavoidable.  We won't acknowledge this, but we know it to be true.  

Might it be a good idea to identify ways to bridge current business to future business?  You're willing to test a dot-whack, why not test something more progressive?

A 1974 Chevy Nova

In Gliebers Dresses: Catalogs on Trial (Amazon Kindle, B/N Nook, $0.99), we deal with the concept of a "1974 Chevy Nova".

My first car was a 1974 Chevy Nova.  I paid $800 for her in the Spring of 1988.

In the Spring of 1989, it was time for a new car.  

You'd shut the car off, and pull the keys out of the ignition.  You'd close the door, and you'd walk into your local Perkins Restaurant.  Thirty seconds after entering the restaurant, the car would still be running.  Eventually, she'd shut herself off ... making a "PIRRRRRRRROOOOOWWWWW" sound, followed by a "BANG", and a puff of dark blue smoke.

Now, I could have rebuilt the car, from scratch.  She was rusty.  The front grill was damaged after hitting a deer at 50mph on a freeway.  She needed new tires.  The carburetor was ruined from an incident where I accidentally put unleaded gasoline in the car.  Or, I could have gone out and purchased a new car.  In other words, I could have continued to invest in what was old, or I could have invested in something new.


If I were to rebuild her in 2011, I'd have two choices:

• I could restore her to her original condition, as she was back in 1974, and then buy a modern, 2011 SUV or mini-van or sedan, loaded with all of the modern conveniences offered by modern cars.  I could park two cars in my driveway.
• Or, I could modernize the 1974 Chevy Nova, with all of the latest gadgets and gizmos.  I could add a navigational system, I could toss in a subwoofer and iPod connectivity.  I could install a moon roof ... you get the picture!  But she'd still be a 1974 Chevy Nova, an odd one at that.

This is the decision that we face, as shepherds of brands.  Do we add social media to a brand embraced by a 62 year old customer?  Do we add mobile to a brand embraced by a 58 year old customer unlikely to ever own an iPad?  Or do we "park two brands in our driveway", one that is authentic and relevant to the 1974 Chevy Nova audience, and one that is appropriate and relevant to a twenty-eight year old Mom needing a mini-van?


This is an important issue that the Management Team at Gliebers Dresses face.  Best practices suggest that you modernize your 1974 Chevy Nova, making it a "multi-channel" vehicle.  

You could also consider parking two cars (brands) in your driveway, each one suited for different purposes.  You could let the 63 year old feel nostalgic about driving the '74 Chevy Nova, and you could allow the 36 year old to drive a functional vehicle tailored to the needs of a 36 year old.


You do not have to force "multi-channel" upon every customer in the same way, do you?  There's nothing wrong with building a "social" or "mobile" brand, from scratch, letting a classic catalog brand do what it does best, while making a bet on the future.

Dear Catalog CEOs: Customer Demographics And Multichannel Issues

Have you taken a look at the channels that customers in various age bands use?

It's an enlightening exercise.

You have one whole group of Social Media pundits telling you that you are dead if you don't get serious about engaging the modern consumer.


You have one whole group of Multi-Channel pundits telling you to execute integrated campaigns across multiple touchpoints, because best customers "do everything", so you'll improve response if you saturate every channel with the same merchandise at the same price with the same presentation (analyzed out of an integrated database).


You have new media pundits telling you that if you don't have an industry-leading mobile app by October, you will be out of business.


And then we have you.


You live in the real world.  You work at a real company that has to make quarterly numbers.  You don't write clever headlines to maximize page views or re-tweets.  You have to sell something, or you lose your job.


In the real world, customers do multiple things, however, those "multiples" are defined by the age band the customer resides in.


And, yes, I willingly admit that there are 72 year olds that love using an iPad.  I willingly admit that there are 27 year olds who thumb through catalogs, then write checks and use the post office to mail orders to catalog brands.


Look at your own data.  It is likely that your own data looks a lot like the image above.


In other words, there are Social Media experts that are 100% right about Social Media being a vehicle for driving sales, because these folks cater to a customer demographic that craves Social Commerce.


And there are New Media experts that are 100% right about the fact that you need an iPad app tomorrow or the world is coming to an end ... because in the crowd that the New Media expert runs in, the New Media expert sees the tidal wave coming.


And there are Catalog Marketing experts that are 100% right about the fact that customers still lick stamps and mail orders in envelopes ... they fully know that their customer will never, every, use an iPad app to bond with others in a Social Commerce nirvana.


Know your customer.


You don't have to be everything to everybody.


But if your current customer is on the right-hand side of this chart, you might want to think about building a new brand, one that capitalizes on the tactics on the left-hand side of this chart.  That's a marketing strategy that has a better chance of success than trying to ram a catalog down the throat of a 24 year old, or trying to force a 64 year old to use an app to shop.


Thoughts?