Sure, Let The Toll Collectors Determine The Creative Strategy For Your Ads!

You've read this one,right (click here)?

Imagine if you drove past a toll booth along I-294 outside of Chicago ... and as you drove by, the messaging screen told you what kind of car you had to drive to optimize your highway experience?

• "Hey 1974 Chevy Nova driver, your car is bad for the environment ... buy a used Corolla and enjoy twice the gas mileage."

That's the same thing, isn't it? In the article, somebody else determines the creative that gets you the most sales or efficiency or engagement or whatever pseudo-metric you want to measure.

I'm not saying having a toll collector execute your creative is good/bad.

I'm simply asking you to think.

How do you feel about a 2020 marketing landscape where toll collectors increasingly own your creative/branding strategy? They take your money and they optimize what your creative looks like. 

What does your job look like, in a world where you don't even own your message? 

How do you make sure you acquire 100 of the customers you want to acquire instead of acquiring 115 customers that the toll collector wants you to acquire?

How do you stop toll collectors from optimizing for short-term performance results that benefit their bottom line but hurt your long-term performance?

You think about these things ... right? Right? Or do you simply trust third parties, and in the process, turn your career trajectory into one aligned with a "vendor communication specialist" role?

What is your career plan - in other words, how do you evolve your career path to deal with a world increasingly dominated by toll collectors who own other aspects of your strategy?

Discuss.

FIFA Women's World Cup: Merchandise Forensics At Work

Last week, the United States defeated Japan by a score of 5-2, earning the title in the FIFA Women's World Cup up in Vancouver.

What does this have to do with Merchandise Productivity?

It turns out that this was a very good team (i.e. great merchandise). But the television ratings (i.e. sales) weren't very good at first, were they? They weren't bad. A couple million people watched the first game, a win vs. Australia. Then more people watched a 0-0 draw vs. Sweden. The audiences grew for wins vs. Nigeria, and Columbia, and China.

By the time the semifinal was played (against Germany), more than ten million people were watching.

And last Sunday, an average audience of more than 26,000,000 folks (between Fox and Telemundo) watched the United States win the title ... with more than 40,000,000 people watching at least a moment or two of the game.

Everything works when customers love the merchandise. Especially word of mouth.

Great companies seldom possess 30% ad-to-sales ratios. Great companies sell great merchandise. Customers, who love the merchandise, spread the word, lowering the ad-to-sales ratio. Heck, when I worked at Nordstrom, I could not believe that our ad-to-sales ratio (2007) was +/- 2.5% of net sales. Go look at Macy's, the established omnichannel leader, and see what you learn there. You don't have to advertise as much when customers love merchandise/service.

Marketers greatly influence merchandise productivity, by the way. Sure, the marketer can offer 30% off plus free shipping, but everybody does that already, so the marketer isn't accomplishing anything special. But when the marketer takes a new item that is performing well, and features that item across channels, causing that item to become a winning item, well, then the marketer has accomplished something. This is a "slow build" approach ... mirroring the slow build in TV ratings for the US Womens National Team. We just need patience. We also need the right reward structure.

Focus on marketing merchandise. Focus less on marketing channels.

So What Is The Right Definition?

Way back in 2001/2002, I was given this image by a print rep ... the image offered "proof" that multichannel marketing was the preferred strategy. I recall the print rep advocating that companies that did not merge paper & physical stores and the internet were essentially dead.

How did the "bonanza" work for you?

About five years ago, a major researcher proclaimed that multichannel was dead (thanks for demanding that everybody adopt a multichannel business for a decade prior), and was about to be replaced by something called "omnichannel".

Since then, the same arguments have been used - just rebranded. Everytime an e-commerce brand announces that a store is opening, it's listed as "proof" that omnichannel works (as opposed to the reality that maybe, just maybe, the e-commerce business is running out of digital growth opportunities). In other words, to some, omnichannel is the reinvention of the venn diagram above.

To others, omnichannel means "seamless commerce". This is a very reasonable interpretation. I can support making it easy for a customer to shop where she wants, how she wants. The challenge with this interpretation is that it is expensive to align all channels along the vision of this sect of the omnichannel community. Not only is it expensive, but this sect of the community often acknowledges that there won't be a sales gain, once the vision has been fulfilled. The problem, then, is that the in-brand employee must spend money but should not expect a return on investment. That's a good way for the in-brand employee to get fired.

There's another omnichannel community - this one argues that the customer touches a dozen digital channels before buying merchandise. In the customer acquisition phase, this is undoubtedly true. I've analyzed the data - repeatedly. The customer is visiting your site five times over seven days, is using Google & Facebook & Pinterest to comparison shop. In this sect, the omnichannel advocate argues that you must spend money on digital advertising, in an effort to capture the sale. In other words, you must spend digital dollars to prevent the customer from buying from somebody else. This is a tough argument as well, because when everybody spends digital dollars, sales grow at the rate of inflation, but ad dollars increase, meaning that only the digital omnichannel vendor community benefits.

Finally, there's a fourth omnichannel community - the "data" community. This sect argues that you use data to be "smarter". The data must be collected across silos, and must be collected in an aggregated form across the internet - meaning that those who aggregate data will get paid. This faction of the omnichannel community piggybacks on the "visiting a dozen digital channels before purchasing" faction, offering to reduce tolls within that community by increasing tolls within the data community.

Those are four of the leading interpretations of omnichannel. None is right, none is wrong. The only thing that is certain is that each sect wants your money. The only problem is that, outside of a few cases, you won't experience an increase in return on investment.

This is why Merchandise Productivity is so important. When you grow merchandise productivity by 10% (easily achievable), every one of the omnichannel factions listed above benefit. The vendor community should demand that you increase merchandise productivity - it's the easiest way for vendors to grow their business.

So what is omnichannel, anyway? Your thoughts?

The Paper Industry

Here's a ditty, forwarded to me by folks in the paper industry ... a campaign to encourage the public to embrace paper and packaging ... click here for the press release.

Twenty million dollars will be spent, which, quite honestly, is about equal to zero in the world of advertising. Tactics include:

• Television Commercials.
• Print Ads.
• Banner Ads.
• Videos.
• Website Info Hub.
• Facebook.
• Twitter.
• LinkedIn.
• YouTube.

A quote:

• "The campaign highlights relatable moments that connect consumers to paper and packaging products in meaningful, emotionally relevant ways," says Mary Anne Hansan, P+PB's executive director.

Ok, let's think about the three mega-trends that we are facing.

• Merchandise Productivity.
• How Will I Acquire A New Customer In 2020?
• How Will I Avoid Paying Tolls?

Now let's evaluate the trends within the context of your beloved paper industry.

• Merchandise Productivity: On the decline. For every JCP who is celebrated for mailing just one (1) catalog, there are tens of millions of people not using paper - instead using Instagram and Pinterest. This drives down merchandise productivity. When you read the press release, you learn that the paper folks do not believe they have a merchandise problem - you learn that the paper folks believe they have an awareness problem. They are attempting to increase merchandise productivity via advertising. The core issue, of course, is the merchandise.
• New Customers: Look at the list above. This initiative demonstrates that leadership wants new customers - and will use advertising as the medium to find new customers. It doesn't matter if this is right/wrong, this is the worldview they have, and we all have a worldview, don't we?
• Tolls: Again, look at the list above. The initiative is all about tolls, isn't it? They're going to pay digital channel toll managers a series of tolls in an effort to convince digital users to use paper. Clearly, digital toll collectors are going to profit from the endeavor. Digital folks love it when offline folks pay digital tolls to convince digital users to use offline products.

So, the initiative does not address merchandise productivity. The initiative suggests that the way to find new customers is via advertising. The initiative suggests that it is a good thing to pay tolls in an effort to convince digital folks to use paper.

Do you see how we can view our efforts within the context of the three mega-trends?

Can you see how this initiative, which may work and may deliver sufficient ROI, is largely positioned as opposite of the approach we've been talking about for two months?

Free Shipping

Catalogers have a serious challenge (well, there are many, but let's focus on one of them today).

Let's consider an online business ... one that has a $100 average order value ... one that has a 15% ad-to-sales ratio ... one that gives away free shipping at an average of $10 per order. In total, 25% of sales is consumed by advertising costs and free shipping expense.

Let's consider a catalog business ... one that has a $100 average order value ... one that has a 25% ad-to-sales ratio ... one that charges (on average) $10 for shipping costs ... thereby offsetting the $10 fee to ship merchandise. In total, 25% of sales is consumed by advertising costs and the net of shipping income/expense.

Which business has an advantage?

Free Shipping is a key driver in two of our mega-trends.

• How will we find new customers in 2020?
• How will we avoid paying tolls?

Make no mistake - free shipping (as of today) is a toll we place upon ourselves. Catalogers operate at an enormous disadvantage - unable to offer Free Shipping on a consistent basis because of the onerous costs of catalog marketing.

The smartest of catalogers will eliminate a large portion of catalog marketing expense, so that the smart cataloger can offer free shipping, thereby becoming more competitive (and growing sales) in the process. Something needs to be given up, in order to gain a competitive advantage. What will need to be given up, of course, is break-even (or worse) catalog marketing activities that do not pay dividends.

Sometimes These Meetings Get Pretty Interesting

I'm at lunch with a digital executive - a professional on the vendor side of the equation. This individual is kind and charming and intelligent. He simply faces the kinds of pressures most of us face. Yup - this person is under pressure to deliver growth.

The individual is speaking about a major client ... a huge business. This individual wants this huge business to utilize even more digital advertising, and for good reason ... it's time to get paid.

This individual doesn't know something I know.

• The client is also my client.
• I have analyzed every penny this client spends with the individual sitting across the table from me.
• I know the ROI of the digital advertising sold by the individual sitting across from me.
• I cannot tell the individual that we share the same client.

The individual theorizes (quite accurately) that the digital advertising his agency sells touches 3/4th of the customers that shop digitally with the client in question. Because his agency is ultimately touching 3/4th of the customers/orders, he wants to impose a much larger toll on the large client. He argues that he is responsible for generating 3/4th of the orders. Never mind that sales at the company are flat since the dive into retargeting ... the vendor wants to impose a serious toll.

The individual asks me to call any of a large number of Executives at this company. The individual asks me to convince the Executive Team that, just because this individual can get an ad in front of nearly every customer, the individual should get credit for just about every order placed by customers.

For the cost of a caesar salad, this individual wants me to convince Executives that interrupting customers with ads causes orders to happen, and because it causes orders to happen, the individual deserves to receive increased toll payments.

There would be no return-on-caesar-salad-investment (ROCSI) on this day.

But most important, folks, is the world view of some in the digital community. This worldview is no different than somebody arguing that without a cash register, money could not be collected - and therefore, the cash register deserves credit for all orders.

You, yes YOU, the smart digital merchant, you create demand. The customer never knew she needed to purchase that jean jacket. You made that happen. The fact that somebody can follow the customer across the internet reminding her that she wants this jacket is largely irrelevant. You, yes YOU, created the demand. You deserve to keep the profit.

Your attribution work must be really, really special, folks. You must know your organic percentage? Why? Because the digital toll collectors are coming after it. A good retargeting program might be worth 1% to 2% of your sales. Don't let them come after 75% of your sales. Know your stuff.

The Story Ends Differently

Have you had a chance to read this little ditty (click here)? It isn't hard to find people who disagree with his thesis. But it is hard to observe otherwise.

Click here for additional commentary ... I particularly enjoyed one of the hand-picked quotes.

• “The peculiar development, full of dramatic irony, is that television, with its more circumscribed audiences making much more active selection and choice, becomes upscale media, and digital, with its mass reach and reflexive actions, becomes the downscale side.”

Oh my goodness. Does that not outline what digital has become in our marketing world?

"Align channels to create a seamless customer experience" ... have you ever noticed that so much of this seamless customer experience includes making sure that the customer gets twenty percent off plus free shipping ... and by making the digital experience a constant search for the lowest possible price, digital destroys the very environment it was promoted to build?

The story, so often, ends different from what we were originally sold. What I've learned, from analyzing +/- thirty-five brands this year, is this:

• Merchandise Productivity is king. Merchandise productivity has largely been ignored for at least a decade, and we're now paying the price for our lack of attention.
• Customer Acquisition is getting harder and harder. A small number of businesses possess a disproportionate stranglehold on customers.
• In the image above, Tolls are being collected all throughout the customer journey. Most of my clients are dealing with profit-and-loss statements peppered with tolls. The tolls allow the businesses to grow (net sales), but do not allow the business to earn a high-quality level of profit. As a consequence, the minute a -5% merchandise productivity hit happens, the business loses money ... lots of money. Quality businesses absorb the -5% merchandise productivity hit without stress.

Undoubtedly, my story, the one I am telling you, will end differently as well.

But I will say this ... focus on merchandise productivity. Merchandise productivity covers up a lot of marketing, creative, inventory, and finance sins.