Dear Catalog CEOs: The Deeper Meaning Of Amazon And USPS

Dear Catalog CEOs:

Well - you and the vendor community sure enjoyed this rant (click here), after the USPS agreed to deliver Amazon packages on Sundays in NY/LA this year, more markets next year. This article is trending toward a top-10 readership level for 2013. In other words, you are interested in the topic.

You understand, of course, that there is a much deeper meaning than just Amazon and the USPS, that there's so much more to this story that their relationship?

In 1993, cataloging was at the top of the food chain. Your vendors were there to support you. You had the power, they needed your money.

In 2003, Google and search and all pre-social, pre-mobile activities were peaking. Your vendors worked hard to coin the phrase "multi-channel", encouraging you to keep mailing catalogs, so that they could still remain relevant.

In 2013, with catalog in-mail volumes down 40% from 2007 (no, that's not just the Great Recession, that's the realization that the world is changing), your vendors are now searching for their path to the future, independent of you.

Think I'm wrong?

I was in a meeting recently where the marketing director told me she couldn't reduce circulation because their paper rep locked them into a six month, non-negotiable supply of paper. Obviously, the paper rep isn't thinking about what is best for the cataloger (though I bet the paper rep could find more paper if the cataloger needed it). No, the paper rep is trying to put food on the table, and can now do that for another six months.

I was in a meeting recently where I learned all sorts of interesting things that some co-ops are doing with your data. They realize that your mail volume will decline another 40% over the next six years, so they are busy using your customer acquisition investments to research how to best integrate offline transactions with social/mobile/local data, to provide a 360 degree view of customer behavior that can be sold to "brands". Pay attention to how this works - you contribute data for free - they make you pay for access to data, then they use your money to create products that allow "brands" to pay to access the data a second, a third, a fourth, an eleven-thousandth time.

Big Data!

In other words, this co-op no longer cares about you, the cataloger - if they did, they'd put experienced reps and modelers on your account and actually protect your data as a competitive advantage for your continued loyalty to them. You are just a data input. Remember back in the mid 1990s when the co-ops begged (yes, begged, I was there) for you to participate with them? When's the last time your co-op begged you for anything? No, your co-op has moved on, and is charting a path to a future where you are nothing more than a data input to them. It's been that way for some time, to be honest.

The USPS is charting a path to the future, and hint, it only includes the merchandise you sell, not the delivery vehicle that creates the sale (the catalog) ... hence, a partnership with Amazon.

I was in a meeting recently where a printer-backed start-up told me that their marching orders were not the product they were selling to catalogers, but the data that the catalog customer would create for them. This is coming from a printer-backed start-up ... a printer ... a printer looking for a path to the future. The printer realizes that it must find a path to the future, and that path will be less and less dependent upon you, over time.

Your search vendor, your email vendor, your database hosting company, those who work in your affiliate program, or retargeting, your matchback vendor, your attribution vendor, they're all using your data as a short-term bridge to help them get to the future. 

That future, of course, is Mobile + Data + Social + Local = Youth + Revenue.

Your vendors are leaving you. Notice that they aren't firing you. 

They need your money so they can invest in Mobile + Data + Social + Local = Youth + Revenue.

You are funding their future.

This is the deeper meaning of the Amazon/USPS relationship. The USPS is using your postage to invest in a future with e-commerce brands needing to deliver merchandise in real time.

Twenty years ago, Amazon didn't exist, and your vendors needed you.

Today, Amazon is on the verge of crushing most standalone direct marketers. Your vendors need a path to the future that likely does not include you.

The multichannel experiment failed miserably, for if it were successful, Amazon would have lost and the USPS would be giving you incessant discounts to keep your business - or the USPS would be offering you Sunday delivery. The customer chose Amazon. The USPS chose Amazon. Multichannel lost.

It's time for you to do two things.

1. Choose vendors who help you get to the future.
2. Choose your own path to the future.

Can we (our industry) have a meaningful discussion about our shared future? I'll help facilitate this discussion. Email me (kevinh@minethatdata.com) with your thoughts.

Multiple Channels Limit The Assortment The Customer Buys From

You'd think that all of these channels result in more and more items being sold.

And yet, in my Merchandise Forensics projects, I keep seeing an opposite trend.

In one recent project, the number of styles sold by channel yield an interesting trend.

• Telephone / Catalog = 4,393 annual styles selling at least $500.
• Online = 3,558 annual styles selling at least $500.
• Email = 3,240 annual styles selling at least $500.
• Search = 2,992 annual styles selling at least $500.

In online marketing, the best-selling items tend to be featured on the home page, and on landing pages, giving them more attention, making it hard for low-selling items to get any attention outside of a "customers who bought 'x' also bought 'y'" environment.

In email marketing, the items with lower price points and high unit volumes tend to be featured more often, in an effort to ramp-up email opens/clicks.

In search, the items that Google wants to give attention to get attention. You play a role in the items that are ultimately purchased, but Google plays a bigger role. Nobody talks about this, but Google, not your customer, decides what sells.

What does this mean? As a business is "digitized", we're seeing more and more demand pushed into fewer and fewer styles/skus. Chasing customers in an omnichannel world may (or may not) yield an integrated customer experience that may (or may not) yield increased sales. 

What so few people are thinking about is the thought that the omnichannel experience fundamentally alters the merchandise assortment, putting a business at increased risk via a smaller, high-selling assortment. 

As fewer and fewer items generate sufficient sales volume, the marketing team respond by "promoting" those items at 20% off plus free shipping, further diluting the profit and loss statement.

As the profit and loss statement is diluted, the CFO responds by outsourcing functions, reducing headcount, lowering expenses.

As marketing is outsourced, vendors algorithmically take over, and the cycle results in an acceleration of a small number of winners and a large number of under-performing items.

Think about this, and measure it. You're going to see the seeds of this dynamic appearing in your business, too. The vendor community, through "omnichannel" and mobile, is reshaping your business in ways you have not anticipated.

Gap Omnichannel Article

Here's one for you - give this a read (click here).

Everybody has a different take on what "omnichannel" really means. Too often, it's an "inventory / fulfillment" solution. We can turn physical stores into digital distribution centers. 

Or, we could figure out what makes for a magical retail shopping experience in an era where every piece of knowledge ever contained in the world is available in one's own hand, on demand.

The latter is the real issue.

Dear Catalog CEOs: Amazon + USPS = You Do Not Count

Dear Catalog CEOs:

Well, you've been humiliated once again (click here please).

You sold your wares on Amazon, teaching Amazon what sells and what doesn't sell. Amazon used that information, and is now headed toward $100,000,000,000 (yes, that's one-tenth of a trillion dollars of annual sales ... it will take less than three years to get there at current growth rates). In a total market where growth is at or less than inflation, that level of sales volume has to come at your expense, don't you think?

Meanwhile, you are busy lobbying a dysfunctional Congress to keep the USPS viable. You are fighting to help the USPS, because, of course, helping the USPS stay viable allegedly keeps your business viable.

And while you're busy lobbying to help the USPS (spending your time helping the USPS, not spending that time selling your own wares via e-commerce - how silly is that when you stop to think about it), here's what the USPS thinks of you:

1. Considers ending Saturday delivery of your catalogs.
2. Strongly considers significant postage increases - charging you significantly more for the same level of service.
3. Provides your biggest competitor, a non-cataloger named Amazon, a business that does not fund the USPS via the kind of postage you pay, exclusive Sunday delivery of their products in major markets (NY/LA this year, many more next year), helping run you out of business even faster.

How utterly feckless can our industry be? 

I mean, you paid postage for decades - decades! You funded the pensions of the very Executives who decided to sell out to Amazon - and I get it, Amazon is getting close to being bigger than all of us put together, it's hard to blame the USPS. But come on! Do you treat your loyal customers this way?

This tells us that the future of the USPS is not the mailing of pieces of paper - it's the delivery of merchandise. When viewed via that perspective, Amazon should get top priority.

Merchandise.

Remember, you funded the USPS so that they could get to this point where they pivot to serving Amazon better than they serve you.

Our industry is Charlie Brown, with the USPS + Amazon playing the role of Lucy, pulling the football out at the last second of an attempted kick.

It's common for postage to represent 5% to 10% of annual net sales - often equal to 50% to 80% of all other fixed costs incurred by your business. Think about that whopper of a statement for a moment. You spend more on postage than almost anything else.

How has your loyalty been recognized by the USPS?

When are you going to stand up for yourselves and say "ENOUGH"?

As Lucy says at the end of this video ... "Isn't it peculiar, Charlie Brown, how some traditions just slowly fade away?" (click here for the video if you follow via email or RSS). The USPS/Amazon Sunday partnership helps facilitate the evolution of our tradition. 

Only you can fix this. 

You know what you have to do to evolve. Your future involves spending much less money with the USPS. Time to get busy. It's clear the USPS and Amazon don't care about you. We knew Amazon didn't care. Now we know how the USPS feels about you. Get busy.

25 Random Observations And Questions

1 - If we learned the cautionary tale that you kill yourself when you stop offering discounts and promotions (i.e. JCP), then why was JCP struggling so badly leading up to 2011 when it still generously offered discounts and promotions?

2 - If omnichannel and bricks 'n clicks are the future, then how do you explain why Borders went out of business? Bonus questions ... how do you explain that Barnes and Noble didn't gain market share when Borders went out of business ... and how do you explain that Amazon, without a retail presence, sells books and eats into retail book store market share?

3 - If omnichannel and bricks 'n clicks are the future, then why did Blockbuster Video die while Netflix thrived? Wouldn't the retail presence have been enough to crush Netflix? And if your answer is that Blockbuster made key strategic errors, then shouldn't we be worrying about merchandising/service strategy first while giving omnichannel very little attention?

4 - Assume that omnichannel and bricks 'n clicks are the future and Macy's is the omnichannel poster child for omnichannel success. Why, then, is Macy's consistently posting negative comp store sales results? And if your answer is "it's merchandise, stupid", then why are we choosing to not focus all our efforts on merchandise?

5 - If catalogs are a vital part of an omnichannel future, then why have total catalogs mailed declined by a whopping 40% in the past six years (click here)?

6 - If mobile is the future, and it most assuredly is the short-term future, and if most folks will access your brand via mobile within three years, then why are mobile conversion rates so horrifically awful, even among rabid early adopters, and what does that mean to the future of e-commerce?

7 - What does it mean for the future of catalog marketing when the average catalog customer is sixty years old?

8 - Explain why Safeway requires a club card for cheap prices and loves couponing, but Trader Joes can sell at full price and thrive?

9 - Why do you happily pay Amazon $79 a year ahead of time to get products shipped to you, but you won't buy from your favorite e-commerce brand unless they offer you free shipping?

10 - What did Amazon do different than everybody else to achieve an approximate 25% e-commerce market share? And why do we think that the solution to this battle is to simply become more "omnichannel", a solution that seems to have only helped Amazon get bigger?

11 - How do you plan on keeping your business on level ground under the assumption that Amazon could represent 40% of e-commerce in five years?

12 - Why does Forrester Research promote a digital / social / mobile / big data / omnichannel future, but use Direct Mail to generate business? Furthermore, why does Forrester Research describe their own social media practices in their 2012 annual statement as not materially moving the sales line? In other words, why is the research brand responsible for promoting a digital future not capable of fully leveraging digital for it's own future?

13 - Of what value is it to generate $2,000,000 of Cyber Monday demand at 30% off plus free shipping at a 40% gross margin when you could generate $1,000,000 of Cyber Monday demand at full price and a 60% gross margin?

14 - If "All Magic Comes With A Price", why are so many of us willing to pay that price?

15 - Why would the USPS consider cutting Saturday service for catalogers while jacking up the price of a catalog mailed to a customer, but happily accept money from Amazon to deliver Amazon's packages to your home on Sunday in major markets, helping put you out of business in the process? Discuss.

16 - How, in a mobile environment, do you plan on sharing your full assortment with your customer, when you are so limited by what you can share with your customer in a mobile environment?

17 - If you promote an omnichannel future of sameness across all channels, then why do you allow your email marketing team to offer discounts and promotions that are not available to best customers who fully use all other channels but do not subscribe to your email channel?

18 - If you built a business on search engine optimization - in essence - if you built a business on free traffic and free information from Google, then aren't you, and not Google, accountable for the problems you face now that Google has essentially repealed organic search keyword information? Remember, all magic comes with a price.

19 - How many new products did your company launch in 2013? What percentage of these products became best sellers? How did this rate change vs. 2012? If you don't know the answer to these questions, describe the ways you are at a competitive disadvantage to those who know the answer to these questions.

20 - Why do you match back orders to your catalog that would happen anyway, even when you have the mail/holdout test results to prove that you should not practice this "best practice"? Are you worried about what will happen to the future of your catalog if you do what is truly most accurate and most profitable for your business?

21 - If you ask 100 attribution vendors to allocate orders to marketing activities, and you get 100 different answers, how exactly do you know which answer is the right answer?

22 - If all channels are supposed to be representative of our brand, and by aligning all channels perfectly we achieve omnichannel excellence, then please describe why Microsoft, first with the Zune music player, and today with the Surface tablet (which integrates with your desktop so well that you can use Outlook or Excel or Word - killer apps, right), is unable to make a dent on what Apple accomplished? And if your answer is that Apple has all the apps, well, then didn't you just prove the point of how meaningless omnichannel really is, because you've just demonstrated the importance of product (apps)? And if you've just demonstrated that product/apps/merchandise are so important, then why are your practices and analytics not aligned around merchandise in the first place? Discuss.

23 - If social media engagement is the difference between success and failure, then wouldn't Best Buy, with their Twelpforce, be crushing the competition?

24 - If social media should not be measured via sales and profit, but instead, via engagement and metrics aligned with anything that is non-revenue producing, then describe why your company should continue to invest $80,000 in salary plus benefits for your position, when your company could invest your $80,000 salary in paid search and generate $250,000 of sales and $20,000 profit?

25 - Is it possible that you and your co-workers, and not vendors / trade journalists / bloggers / social experts / mobile experts / management consultants / researchers, are most knowledgeable about the dynamics surrounding customer behavior at your business?

The Relationship Between Product Density And Conversion Rate

Here's a way to think about conversion rate, in absence of marketing activities.

Your "brand", if you will, is responsible for generating half or more of your conversion rate. Customers decide they want to buy from your business, generating a significant amount of the conversion rate.

After we account for customers who "had an agenda" and were going to buy, regardless, we have everybody else. These customers need to be informed.

We inform customers via merchandise, we inform customers via discounts/promotions, and we inform customers via creative/imagery.

And when we minimize the amount of information presented to the customer, we minimize our conversion rate.

This is happening in mobile. We're unable (at this time) to provide as much information as we can on a website, or via a catalog. This drives conversion rates down.

When we drive conversion rates down, we respond by offering deeper discounts/promotions, or we gamify the experience (cheap prices end at 11:00am, act now).

When we attract customers via discounts/promotions, we shift the focus away from merchandise.

In other words - mobile is (at this time) shifting the focus away from merchandise. The form factor employed by mobile demands this - the customer has to know what the customer wants before hand, using mobile to simply transact. The art of getting the customer to "shop" is, at this time, not part of the mobile experience.

Just as interesting - when we reduce the amount of merchandise featured on a mobile website, we, by default, try to jack up conversion rates by offering the best products, the ones most likely to increase conversion rates. This leads to a small amount of highly productive "winners", and everything else that sells less well - in fact, selling at lower rates than forecast, causing us to have to increase liquidation activities, hammering gross margins in the process.

The whole process is quite interesting to observe.

The ramifications are significant, and worth considering.

The Merchandise Tournament Bracket

Do you really want to optimize your email marketing campaigns? And no, I'm not talking about A/B testing 30% off against 10% off plus free shipping - that doesn't push the peanut.

No, it's time to help your merchandising team.

Here's what I want you to do.

1. Pick eight new items that have sold reasonably well in October/November.
2. Randomly match up the eight items, in a tournament bracket.
3. In email campaign #1, match up item 1 vs. item 2. Tell the customer you're running a tournament, and the item that sells best "wins", and advances to the next round.
4. In email campaign #2, match up item 3 vs. item 4 - same premise.
5. In email campaign #3, match up item 5 vs. item 6 - same premise.
6. In email campaign #4, match up item 7 vs. item 8 - same premise.
7. In email campaign #5, match up the winner of 1/2 against the winner of 3/4.
8. In email campaign #6, match up the winner of 5/6 against the winner of 7/8.
9. In the championship, match up the winner of 1/2/3/4 against the winner of 5/6/7/8.

What do you get for doing something like this?

1. Your customers will tell you the new items that they like the most (let them "like" various items - measure via sales (80%) and likes (20%) - sort of like "Dancing With The Stars", if you will.
2. You promote/advertise new items, and based on my work this year, most of us desperately need to promote/advertise new items.
3. You do something different than the same, boring, 20% off plus free shipping that plagues email marketing.
4. You can promote the tournament bracket across Facebook and Twitter - pleasing the omnichannel advocates to no end - you partner with your customers. Think of the virality of it all?!
5. You "engage" your email subscriber list - theoretically pleasing everybody.

What would stop you from doing this? What would stop you to focus on selling, to not focus on teaching your best customers about your best new items?

Discuss.