Time To Sell?

Times are changing.


In 2007, you hired me, wanting to understand how channels fit together.


In 2010, you hired me because you wanted to reduce ad cost in order to maintain profitability.


And in 2012, the theme of the first five months of the year is "buying" and "selling".


One side of the table is looking at businesses that are "distressed", trying to "steal" a business in a strategic play.


The other side of the table spent a career growing and maintaining a catalog business.  It is time to be compensated for a lifetime of dedication to the craft of cataloging.


Over the next several posts, we're going to study a business that the owner is ready to sell.  Or, at least he thinks he's ready to sell it.  We'll review issues that may cause the health of the business to vary.  The healthier the business, the more you can sell the business for, right?

Dear Catalog CEOs: Store Distance and Mobile

Dear Catalog CEOs:


There's a reason why cataloging evolved to a 55+, rural-based business model.


Let's say you live three miles from your nearest Pottery Barn store.  You receive a Cuddledown of Maine catalog in your mailbox on a Monday.  Interesting items, interesting prices.  But you also live three miles from your nearest Pottery Barn store.


Until 2011, retail always beat online, online always beat catalogs, leaving catalogs to cater to an older, rural audience.


If you worked for a retail brand, and you analyzed tests, you knew that a few things were "true".

• If a customer lived 0-5 miles from one of your stores, catalogs had marginal utility, and emails were more likely to drive volume into stores than to your website.
• If a customer lived 6-10 miles from one of your stores, catalogs inspired some customers to visit stores and some customers to visit your website.  Emails were equally likely to drive volume to stores or to your website.
• If a customer lived 11-25 miles from one of your stores, you were in multi-channel heaven!  Just about everything worked.
• If a customer lived 26-50 miles from one of your stores, the story shifted.  Catalogs drove customers online, while websites were much less effective at getting customers to get into a car and shop at a store.  The website became the anchor of the business for customers 26-50 miles from a store.
• If a customer lived 51+ miles from one of your stores, the story shifted again.  Catalogs fueled the relationship, as rural customers embraced tradition, routine, comfort, and habit, all offered in catalogs.

Until 2011, retail mulched direct marketing.

Then mobile entered the picture.

Mobile doesn't compete with cataloging, be honest!  The 27 year old Jasmine that is using a mobile device is not trading a catalog order for a mobile order.

E-commerce doesn't really compete with retail, if it did, retail would have posted giant, negative comps from 2000 - 2010.  No, e-commerce destroyed catalog marketing, it didn't do much damage to retail.

However, mobile is set to destroy retail as we know it.

No, mobile isn't going to cannibalize 40% of retail sales.

Mobile only has to cannibalize 3-5% of retail sales, over the next 3-5 years, to exact a harsh penalty on a debt-ridden channel.  Retail demands that comp store sales increase enough to offset inflationary pressures.  Without such increases, retailers cannot cover debt obligations and fixed costs.

Entire retail brands will crumble under the pressure of minor comp store sales declines and huge debt obligations.

As this transition happens, companies will take drastic measures to protect the profit and loss statement.  Retailers will spend less on search marketing.  They will cut back on catalog circulation.  They'll do this indiscriminately.

This yields an opportunity for the cataloger ... Jasmine's generation uses mobile to knock out a portion of the retail infrastructure ... retailers respond by trimming marketing to Judy and Jennifer (mistake) to keep the business solvent in the short term ... Judy turns to catalogs ... Jennifer turns to e-commerce ... Jasmine continues to embrace mobile.

Mobile, and the impact that mobile/Jasmine could have on retail, have the potential to prop-up catalog marketing a bit over the next five years.  Pay close attention to mobile trends.  Pay close attention to who uses mobile devices in your business.  Code each zip code in your database for proximity to retail, and then measure the productivity (and channel preference) of those zip codes over time.

And contact me for help with all of this ... because it is about to get very interesting!

Ode To Seat 10C

Picture yourself on a small, commuter plane, two seats to the left and an aisle, one seat to your right.  Your luggage was tagged before entering the plane, because it couldn't possibly fit in the overhead bins.


This was the scene ... a United flight I was on last week, returning from a client visit back East.




I know it is a blessing to be able to fly.
Except when I am seated next to this guy.


Sure, I know these seats are really, really small.
'Specially since I'm six foot, three inches tall.


But your left leg has been touching me for an hour.
In our partnership, you have all the power.


I put my tray table down, to reclaim my space.
Surely a flight attendant supports my case!


The middle arm rest is real estate you acquired.
Not to be shared, that's not how you are wired.


Your elbow uncomfortably nudges my ribs.
I know, on the arm rest, I should have called dibs.


Honestly, I'd like to relax and take a nap.
Dream lovely thoughts of calling this flight a wrap.


But your legal document rests on my right arm.
You're a lawyer. I'll sit tight. No harm.

Attribution Week: Your Website and Paid Search

Take a good, hard look at the "All Other Online Demand" row in this table.


Which column has the best performance for the online channel?


The website is pulled in two opposite directions.

1. Catalogs cause website demand to happen.
2. Emails significantly cannibalize website demand.

Pure website demand is the most elastic of any channel.  Some forms of marketing drive a customer to a website, while other forms of marketing drive the customer away from the website.

It is easy to understand the impact of Catalogs and Email Marketing on website demand.  All we have to do is execute mail/holdout tests.

In Paid Search, it's important to geo-target.  You see, we want to measure the impact that Paid Search has on all other channels.  To this point, we've described the impact that Catalogs and Email Marketing have on Paid Search.

You can set up a brief test ... geo-target specific areas, then execute normal Paid Search activities vs. minimal Paid Search spend, and overlay this with Email mail/holdout test results.

This will clearly tell you how important Paid Search is to all other channels.

Ok, given what you've learned this week (and it is a lot), answer these questions.

1. Do you currently have this level of business intelligence at your company?
2. If the answer is "no", are you willing to execute the tests necessary to answer these questions?
3. If the answer to both questions is "no", please describe in the comments section why you don't think you need to answer these questions?  Go!!

Fab.com ... BOOM!

You probably read this article from Forbes (click here) on the $0 to $100,000,000 year-end-projected revenue figure for Fab.com, right?


This business was built off of the fabled "social commerce" route.  Check out Quantcast ... website visitors skew young, don't they?  Younger customers were sourced from Facebook, from Twitter, via Email.


The article mentions One Kings Lane, a business that has a 65+ audience, but also skews young (check out Quantcast).


I find it fascinating how quickly we dismiss new business models.  Each of these businesses will go from $0 to $100,000,000 in a matter of a year or two.  Now think about your catalog-infused or search-infused business ... did your business add a hundred million dollars of volume in the past year?


We followed a "multi-channel" route, one where catalogs and search were designed to drive traffic to websites.  This strategy yielded, at best, average results.


I can already hear the comments from the peanut gallery:

• "These social commerce businesses don't sell proprietary product, they depend on other folks to be highly creative, they benefit from the creativity of others."
• "We could increase sales if we sold cheap stuff, too."
• "This isn't a best practice, it's luck.  We have a Facebook presence, we're on Twitter, and we have an email list, none of that stuff truly works.  Do you think we're dumb?  We've tried all of this stuff, it doesn't work."
• "You only point out the successes ... for every Fab.com there are five hundred businesses that tried the exact same thing and failed, miserably."

Here's the thing.  If our business model depends on Abacus finding us 55+ rural customers who love responding to catalogs, then social commerce is not going to work, because our customer base is 55+, rural, and loves shopping from catalogs ... we get exactly what we pay Abacus for.

I bring these examples up because so many of you contact me and say "what is the next big idea?" or "what are people doing to grow these days?"  

The stories are generally found among cheaper merchandise that is curated and targeted to a younger audience via word of mouth / social / mobile.

And, yes, there are stories that are fueled via catalogs ... like Chasing Fireflies (click here to see Quantcast data).  But these stories are far less common than those fueled by cheaper merchandise that is curated and targeted to a younger audience via word of mouth / social / mobile.

So let's keep paying attention to folks who have success, identifying the traits that yield success.  Is there a parallel for the businesses we manage?

Attribution Week: Channel Impact

This is our table from earlier in the week, measured via a 90 day long mail/holdout test of catalog marketing and email marketing.


There are many nuggets of information in the table.  Let's summarize how each channel is impacted by catalog marketing and email marketing.


Paid Search:  We generate $2.00 per customer via Paid Search in the quarter.

• Catalog causes $0.72, or 36% of Paid Search volume to happen.
• Email causes $0.18, or 9% of Paid Search volume to happen.
• 55% of Paid Search demand is independent of Catalog or Email marketing.
• We have to attribute 36% of Paid Search volume/cost back to catalog marketing, and we have to attribute 9% of Paid Search volume/cost back to email marketing.

Natural Search:  We generate $2.00 per customer via Natural Search.

• Catalog causes $0.58, or 29% of Natural Search volume to happen.
• Email causes $0.18, or 9% of Natural Search volume to happen.
• 62% of Natural Search demand is independent of Catalog or Email marketing.

Affiliates:  We generate $0.50 per customer via Affiliates.

• Catalog causes $0.34, or 68% of Affiliate demand to happen.
• Email causes $0.10, or 20% of Affiliate demand to happen.
• 12% of Affiliate demand is independent of Catalog or Email marketing.
• We have to attribute 88% of Affiliate marketing costs back to catalogs or email campaigns.
• Since Affiliate marketing is directly tied to Catalogs/Email, we need to strongly consider if the demand will continue to happen if Affiliates are dropped?

Display:  We generate $0.25 per customer via Display:

• Catalog causes $0.15 per customer of Display demand to happen (60%).
• Email causes $0.01 per customer of Display demand to happen (4%).
• 36% of Display demand is not driven by other marketing activities (36%).
• We have to attribute 60% of Display costs back to the catalogs that caused the demand to happen.

Social Media:  We generate $0.15 per customer via Social Media.

• Catalog causes $0.01 per customer of Social Media demand to happen (7%).
• Email causes $0.04 per customer of Social Media demand to happen (27%).
• 66% of Social Media demand happens independent of Catalog/Email.
• Given the strong link between Email and Social Media, there should be some level of integration between the two channels.  Social Media, to some extent, depends upon a strong email marketing program.

Tablets:  We generate $0.65 per customer on Tablet devices.

• Catalogs cannibalize $0.06 of demand from Tablet devices.
• Email cannibalizes $0.04 of demand from Tablet devices.
• In other words, when Catalogs/Emails are sent, customers shift their focus away from Tablet devices, and instead spend money in other channels.  When Catalog/Email activities are not happening, customers shift their attention back to Tablets.  This strongly suggests that, in the future, when customers spend more and more time with Tablet devices, this business will be able to scale back a bit on Catalogs and Email marketing campaigns, because the demand will be recaptured by Tablet devices.

Mobile:  We generate $0.15 per customer on Mobile devices.

• Catalogs cannibalize $0.03 of demand from Mobile devices.
• Email has no impact on Mobile devices.
• In other words, when Catalogs are sent, customers shift their focus away from Mobile devices, and instead spend money in channels congruent with Catalogs.  At this time, Mobile is a very tiny portion of the total story.  In the future, we need to watch this relationship, to see if it continues.  If the relationship continues, the data strongly suggest that we can cut back a bit on Catalogs, because demand will reallocate to Mobile devices.

At minimum, the attribution process should include three things.

1. Mail/Holdout Testing, where applicable.  For catalog marketing and email marketing, this couldn't be easier.  For Display Ads, this couldn't be easier.  For Paid Search, you can vary your budget and compare the impact.
2. Modification of Ad Cost by Channel.  In our example, paid search costs should be moved from the paid search budget to catalog marketing, and to email marketing.  Too often, we don't focus on this aspect of attribution.  Mail/Holdout tests illustrate why we need to do this.
3. Business Intelligence.  The goal of any attribution project should not be to just allocate demand/expense, but should be to teach every employee how channels fit together.  We just don't do enough of this, do we?  How often do we step back, and try to teach employees how our business works?

Contact me (click here) for additional assistance with attribution work.

Attribution Week: Email Productivity

If you ask 100 email marketers the following question, how many do you think will answer "yes".

• Question for Email Marketers:  Do you measure the success of email marketing by executing holdout groups, not mailing customers email campaigns for up to three months at a time?

Ask 100 email marketers this question, and fewer than five will answer "yes".

What a shame.

You see, all of the ways that email marketing interacts with the rest of your business are illustrated by email holdout tests.

Take a look at our example:

Here's the deal.  Email marketers typically measure performance via opens/clicks/conversions, adding average order size to the strategy to yield demand per email delivered.  In our case, over the course of a three month period of time. we get $4.94 demand per customer ... across 26 email campaigns (2x per week by 13 weeks) ... each campaign is generating $0.19 for a total of $4.94.

We run a profit and loss statement.

Demand	$4.94
Net Sales	$4.20
Gross Margin	$2.31
Less Email Cost	$0.08
Less Pick/Pack/Ship	$0.42
Variable Profit	$1.81

That's some sweet action!

Except, of course, that this analysis is providing us with the wrong answer.

When we do not send email campaigns to customers, as measured via mail/holdout tests, we generate just $3.33 demand per customer, not the $4.94 as measured via opens/clicks/conversions.  We know this, because in our example, one set of customers did not receive a single email campaign for three months, and continued to generate incremental demand.

Here's what the profit and loss statement looks like, with our new and more accurate style of measurement.

Demand	$3.33
Net Sales	$2.83
Gross Margin	$1.56
Less Email Cost	$0.08
Less Pick/Pack/Ship	$0.28
Variable Profit	$1.20

Now, there's nothing wrong with $1.20 profit per customer ... but it is a lot less than $1.81 per customer, right?

Let's take a look at what happens to other channels, when email marketing is discontinued for ninety days.

Paid and Natural Search results decrease, by 11% and 16% respectively.  In other words, email marketing causes searches to happen.  In theory, you have to take 11% of your paid search marketing cost, and allocate it back to your email marketing budget.  Yes, you have to do this, this is what attribution is all about.

Demand	$3.33
Net Sales	$2.83
Gross Margin	$1.56
Less Search+Email	$0.15
Less Pick/Pack/Ship	$0.28
Variable Profit	$1.13

Now, that doesn't make a difference in this case ... but when your email marketing program lacks a lot of productivity, well, it is enough to push the whole program under water.

Look at all other online marketing demand.  When you don't mail email campaigns to a customer, that customer changes behavior.  The customer re-directs demand away from email marketing, back to the website ... spending $6.57 per customer online instead of $4.35 per customer online.  In other words, customers are using email as a navigational tool to get to the website.

Look at affiliate marketing demand.  When emails are stopped, customers spend $0.24 each at affiliates ... but spend $0.34 each at affiliates when emails are delivered.  Now, the affiliate is probably getting a cut of each order, right?  Well, you have to attribute that cut on the $0.10 incremental difference, attributing that to email marketing, not to affiliates, because email marketing caused the affiliate order to happen.

Demand	$3.33
Net Sales	$2.83
Gross Margin	$1.56
Less Marketing	$0.16
Less Pick/Pack/Ship	$0.28
Variable Profit	$1.12

Display / Retargeting are not significantly impacted, are they?

Look at social media ... 28% of social media demand is caused by email marketing.  In other words, if you take email marketing away, your brand advocates don't have as much to yap about, and consequently, they spend a little bit less.  In this example, email marketing causes social media demand to happen, so you want to know that, don't you?

Email has minimal impact, when it comes to tablets/mobile.

We learned that email marketing isn't as effective as we believe it to be, when measured via traditional channels.  That being said, it's still highly profitable.

Tomorrow, we look at each channel, decomposing the role of each channel with/without advertising.