E-Mail And Catalog Profit Visualization

"Back in the day" at Lands' End, we had a team that measured the profitability of every spread in our core catalogs.

Even though this information was stored in a database for easy retrieval, the most effective presentation of the profitability of each spread (in my opinion, or IMHO to use the parlance of the day) occurred in a conference room.

Each spread was adhered to colored tag board.

• Gold Tag Board = 30% or better variable operating profit for that spread.
• Green Tag Board = 20% to 29.9% VOP for that spread.
• Blue Tag Board = 10% to 19.9% VOP for that spread.
• Red Tag Board = Worse than 10% VOP for that spread.

When we sat down to review a catalog, each spread was posted in the conference room, in order, from page 2-3 to the back cover.

Instantly, the "profit story" became clear. Visually, a rookie database marketer like myself could see what worked, what didn't work. Visually, I could see how merchandising and creative themes interacted to generate profit. I could see how one model yielded gold/green results, while another model turned customers off.

If you are an e-mail marketer, and you wish to effectively communicate with old-school marketers at your company, give this strategy a try.

Maybe you sent 20 e-mail marketing campaigns last quarter. For each campaign, sum the performance of all of your targeted versions, and adhere the main creative treatment to a piece of colored tag board. Do this for each of the twenty campaigns, and post the performance for all to see.

Each targeted version gets real estate on the tag board as well, with its own background color (gold, green, blue, red, or whatever scheme you wish to employ). Most certainly, you're measuring the profitability of each targeted version of an e-mail campaign, rolling the profit of each version up to a total level of profitability, right?

Invite your old-school CMO into the conference room, and review your twenty campaigns in this manner. Stop talking about open rates, click-through rates, conversion rates, landing pages, Outlook 2007, HTML vs. Text, rendering problems on mobile phones, and all the other gobbelty-gook that causes your old-school CMO to tune out. Simply focus on the colors. Explain how you're going to do more "gold and green" strategies. Explain why the CMO's recommendations resulted in "blue and red" performance.

And then, behind the scenes, build an OLAP-styled repository to store your historical results. Store open rates, click-through rates, conversion rates, dollars-per-e-mail, sales driven to the telephone, sales driven to stores, test results, profitability, and "gold/green/blue/red" status.

By the time your CMO is comfortable with your presentation style, you might even be able to surprise her with your OLAP-styled repository. Ok, maybe not!

And if you practice web analytics for a profession, would it be so hard to apply these principals to your landing pages, so that you can bridge the gap between all of your fancy data and the old-school marketers who don't understand what you're talking about? Give it a try!

Attention CEOs, CMOs, Owners, Principals: The F. Curtis Barry & Company Executive Forum

I'm pleased to announce that I will be facilitating a session at the Executive Forum! If you are a CEO, CMO, Owner, or Principal of a Multichannel Catalog, Online or Retail business, this event is for you!

Leaders of the top multichannel (catalog, e-commerce, and retail) companies will gather in Ft. Lauderdale, FL on February 24-26, 2008 at the Lago Mar Resort and Club for Executive Forum 2008. The annual event, co-sponsored by F. Curtis Barry & Company and MineThatData, draws executives from top multichannel companies who come together to network and share ideas in an open forum setting. There is limited space available, 40 seats (2 people max from each company), so don't hesitate to register.

What will be discussed at Executive Forum 2008?

Click here to read the growing list of hot topics and talking points that will be covered and discussed in detail at Executive Forum 2008.

Schedule for Executive Forum 2008

Executive Forum 2008 begins on Sunday, February 24, 2008 at 2:00 PM in the hotel conference room. Executive Forum 2008 wraps-up on Tuesday, February 26 at 2:00 PM.

Click here for general agenda for Executive Forum 2008. Topics and times will be split out closer to the time of Executive Forum 2008.

Cost for Executive Forum 2008

$100 Early Bird Special - If you officially register and pay in full by December 31, 2007, we will apply a $100 discount to the full price fee of $895. This will make your early bird special $795 per participant. The Early Bird Special applies to each participant registered from your company. Limited to 2 participants per company.

Full Price - If you officially register after December 31, 2007 the registration fee is at full price of $895 per participant.

Hotel for Executive Forum 2008

The hotel for Executive Forum 2008 is the Lago Mar Resort and Club in Ft. Lauderdale, FL. The special room rate is $265/night. Please let them know that you are with the F. Curtis Barry & Company group to receive this special room rate.

Note - All reservations and cancellations are to be made by each individual. The room rate, taxes, and any incidentals are not included in Executive Forum 2008 fee and must be paid by each individual.

Cancellation Policy for Executive Forum 2008

If you must cancel for any reason, please notify us in writing by January 7, 2008 to receive a full refund. Cancellations from January 8, 2008 through January 18, 2008 will receive a 50% registration refund. Refunds cannot be granted on cancellations on or after January 24, 2008. You may, however, transfer your registration to another person at any time.

Registering for Executive Forum 2008

Click here to register for Executive Forum 2008

Past Executive Forum Reviews

Executives who have attended gave Executive Forum “rave reviews,” citing it as a “must attend” for their companies. Here are a few:

“Very good program, came away with several actionable ideas.”
– Bill Stanners, Chief Financial Officer, Norm Thompson Outfitters

“You got more than enough good information to cover the cost of the trip.”
– Jay Alpert, President, Professional Cutlery Direct

“The Forum was much more valuable than other conference-type events. I gained many ideas for the future.”
– Jay Allen, Marketing Director, Rochester Clothing

“Great opportunity for information sharing. Informal networking is just as valuable as the formal sessions.”
– Greg Kadens, Partner, Chiasso

“Priceless”
– Layne Lowery, President, Health Resources

"Prior years I walked away with 2 quick $70,000+ ideas. This year my takeaway is much more strategic.”
– Liz Plotnick, Snay, Chief Operations Officer, Gooseberry Patch

“Good people, good ideas, high caliber facilitation, and 2 very productive days.”
– Charles Silver, Vice President Marketing, Bloomingdale’s Direct

Who do I contact about Executive Forum 2008?

Please contact Jeff Barry at jbarry@fcbco.com or 804-740-8743.

United Kingdom: Catalog Driving 70-80% Of Online Orders?

Jim Fulton points us to this article, authored by the Catalogue Exchange in the UK. The article suggests that catalogers, using traditional matchback algorithms, are driving 70% to 80% of their online orders via catalog mailings.

The UK online market is a lot like the US online market five years ago. We read a lot of these articles in the US five years ago.

Early in the maturity of the online channel, catalogs are going to be the primary driver of online volume. Most likely, the study is directionally accurate.

Things get very interesting once the customer is trained to shop online, and decides she no longer needs the catalog to shop online. For some brands, this change in behavior never happens. For others, this happens very quickly. I lived through this change at Nordstrom --- folks with a traditional catalog mindset, very bright folks, don't understand the phenomenon when I describe it to them.

If you're reading this in the UK, here's a checklist for you:

• This study was published by a group of individuals with a vested interest in promoting catalog marketing. Just keep that fact in mind.

• Multichannel Forensics represent another way of understanding the long-term impact of catalog advertising, across all channels.
  

• Matchback analyses are highly biased. Want to learn how biased they are?
  
• Identify who you were going to mail your next catalog to.
  
• Take a sample of the audience.
  
• Split that sample in half.
  
• One half receives your next catalog.
  
• One half does not receive the next catalog.
• After twelve weeks, do a matchback analysis on the sample that received the catalog.
• After twelve weeks, do a matchback analysis on the sample that did not receive a catalog --- just don't tell your matchback vendor that they didn't receive the catalog.
• In this group, zero (0) customers ordered online because of the catalog --- they didn't receive the catalog!! If you matchback vendor tells you that online orders happened because the catalog was mailed, you've identified the magnitude of your matchback bias.
• Subtract the difference between matchback results in the mailed and not-mailed group. This is the true number of orders your catalog drove to the online channel.

The Writers Strike And Multichannel Marketing

I like to follow Ken Levine's blog, especially during the writer's strike. It's one thing to read a blog, it's quite another to read the blog of a writer.

TV writers want to be compensated when their work airs in the digital realm. When viewers watch "The Office" on television, writers receive some level of compensation. When viewers watch "The Office" on NBC.com, writers do not receive compensation.

How similar is this to the challenges folks in multichannel cataloging face?

When you boil it down, writers want credit for their work ... credit being compensation.

In multichannel cataloging, we see the same thing.

E-Mail marketers truly believe (and rightly so) that they drive significant volume. But they are sometimes hounded by catalog marketers who believe that e-mail marketers couldn't even do their job if the catalog didn't generate an order, causing an e-mail address to be collected.

Search marketers can't measure the business they drive to stores ... and if they could accurately measure it, their budgets would at least double in size.

Catalog vendors are desperate for respect. A printer has to prove that printed material causes online and retail sales to happen. The USPS must prop up mail volume. Co-ops depend upon occasionally biased matchback algorithms that suggest paper is the primary cause for online and retail orders. List brokers and list managers watch dollars flow out of their industry, into paid search ... or worse, they recommended that their clients use the co-ops, only to see the co-ops steal their business, causing consolidation.

The internet changed everything.

Writers want compensation when their work is consumed online.

Catalog, e-mail and paid search marketers and vendors want credit/compensation when consumers use their work to purchase merchandise online or in stores.

The only fair way to replicate a writers strike is to not execute your marketing tactics for a period of time.

In marketing, that isn't called "going on strike". It is called "a test".

If you want to prove that your catalog is so critical to your brand, take five percent of your customer file, and withhold catalog mailings for one year ... see what happens.

If you want to prove that your e-mail marketing is an integral part of your sales promotional strategy, take five percent of your e-mail file, and withhold e-mail campaigns for one year ... see what happens.

If you want to prove that search marketing is responsible for driving sales in stores, try taking five percent of key merchandising keywords, and withhold search marketing campaigns for these keywords for one year ... see what happens.

One year is an important time frame for marketing tests. See, customers don't notice when one of thirty-eight catalogs, or one of sixty-seven e-mail campaigns is missing.

Customers do notice when catalogs stop coming. Customers do notice when e-mails no longer show up. Customers then change their behavior.

This is what you want to measure ... you want to measure what happens when customers have no choice but to use other alternatives to shop. This proves the true value of your marketing channel.

I've executed these tests many times over the past twenty years. The results are never what you'd expect, never similar to what you see when you execute simple A/B splits in short-term marketing strategies. Customers are fascinating --- they do all sorts of unpredictable things when you take marketing away from them for a long period of time.

Your Long-Term Profit And Loss Statement

Multichannel catalogers face unique long-term profit and loss challenges.

For some catalogers, here's how the long-term profit and loss statement might evolve:

Current And Future Profit And Loss Statement
	Current/Catalog	Future/Online
Demand	$30,000,000	$30,000,000
Net Sales	$25,500,000	$25,500,000
Gross Margin	$12,750,000	$12,750,000
Catalog Marketing Cost	($3,825,000)	($750,000)
Online Marketing Cost	($1,275,000)	($2,310,000)
Pick/Pack/Ship	($5,100,000)	($5,100,000)
Shipping Revenue	$2,040,000	$0
Overhead	($2,550,000)	($2,550,000)
Earnings Before Taxes	$2,040,000	$2,040,000

We've been evolving toward the future/online profit and loss column for decades.

"Back in the day", catalogs were "big books", four or five hundred page monsters that cost a fortune to mail, delivering a gigantic amount of sales per catalog mailed. And I mean 'gigantic'!!!

The 1970s and 1980s were a time of transition, as specialty catalogers (i.e. L.L. Bean among hundreds of others) used computer algorithms to "target" customers with specific interests. The targeted catalogs were smaller in size, maybe between 48 and 248 pages. Instead of mailing the catalogs seasonally, the catalogs were mailed to "best customers" on a "frequent" (i.e. monthly or even weekly) basis.

Sending smaller, targeted catalogs on a frequent basis to "best" customers changed the profit and loss structure of cataloging. We saw the death of big books, with Wards, Sears and Spiegel (among others) feeling the wrath of the change in strategy.

Seasonal big books gave way to weekly/monthly targeted mailings. And then the internet showed up.

We embraced e-mail marketing, only to see the medium tainted by unscrupulous marketers. Even so, e-mail may just be a transitional marketing tool, bridging cataloging and online marketing.

We embraced the concept of "multi-channel", the concept that customers wanted to research and explore merchandise in catalogs, on websites, and in stores, before buying in the channel they preferred.

But more and more, I see trends indicating that long-term, the same audience won't shop from multiple channels. Instead, the internet channel will be the "primary" (if it isn't already) direct-to-consumer channel. The catalog/telephone channel will serve a small segment of the customer file that prefers this style of shopping. In online/retail situations, online represents the "research" channel, with retail representing the "purchase" channel.

This leads to an interesting set of dynamics. Long-term, the catalog will serve an ever-decreasing audience. Coupled with increased mailing costs and the onslaught of 'green initiatives' that will haunt catalogers in the next decade, the long-term profit of cataloging, while not doomed, is certainly "at-risk".

It seems plausible that the profit and loss statement at the start of this post represents a possible long-term future for many catalogers.

Online marketing should be (but isn't always) a more efficient marketing platform than sending paper to less-qualified prospects. Brands may use the cost savings from reduced cataloging to offer consumers free-shipping. Brands will hope that efficient online advertising and free-shipping will make up for the sales lost by not mailing catalogs.

The question for you, the catalog or retail marketer, is this ... do you think that you could replace cataloging with online marketing and free shipping, and maintain the integrity of your profit and loss statement?

Interaction

If you are an E-Trade customer with more than a hundred thousand dollars in your account, how brand loyal are you these days?

If I told you on January 1 of this year that E-Trade would be fighting for its life later in the year, would you have believed me?

Our digital society operates on a complex series of "interactions". Interactions are hard to predict ahead of time, but appear easy to see after the fact.

Assume that you purchase inventory at American Eagle Outfitters. Last October, your brand posted a +12% comp. In January of this year, as you made your commitments for this October, could you have predicted the series of economic factors that would conspire to cause customers to actually decrease spend with your brand this October by 3%?

Because if you had predicted this and acted upon it, you wouldn't be sitting on a boatload of inventory that has to be marked down, putting pressure on your profit and loss statement.

The future of multichannel retail belongs to leaders who can see how five or six different factors could combine to yield superior results.

And few of us in multichannel retail have been trained to operate in a world where success is based on combinations of factors that interact favorably with each other. Instead, we want to know the next 'big idea'. And we want it to be an easy big idea ... like re-arranging words in the subject line of an e-mail campaign, or a paid search campaign that works really well and is really inexpensive.

Those who are good at forecasting the interaction of separate factors are believed to have 'gut instinct'.

In our multichannel businesses, you'll know many people have acquired this 'gut instinct' when you start reading about how combinations of factors interacted to cause sales increases.

E-Mail Marketers will start talking about how modules of merchandise interact with creative templates to yield increases in response. When do e-mail marketers ever talk about this?

Database Marketers will stop telling you what happened in the past, and will start telling you what is going to happen ... and will give you a menu of options to avoid trouble.

Catalog Circulation Marketers will clearly explain the merchandising and creative strategies that cause customers to thumb through a catalog and then buy something on the internet or in a store. When is the last time a catalog circulation expert clearly explained this interaction to you in an actionable way, actually telling you how to paginate a catalog in a way that profitably increased sales across channels?

Online Marketers and Web Analytics experts will actually tell us how to assort a website, similar to how good catalogers paginate a catalog. We'll move from landing pages to merchandise themes, themes that replicate customer interests, themes that go beyond the severe limitations imposed upon e-commerce by information technology.

Who do you think is great at seeing how five or six separate factors fit together? Who acts upon these concepts, and drives sales in a profitable way today? Who will do well in the future? Do you have the tools to manage your business differently?

File Power

Folks who've been around the block a few times know that executives want to surround themselves with database marketing wizards who can predict the future.

With many businesses now struggling to post increases, executives are going to look to analytical folks, hoping to see evidence of a "turnaround".

A tool that is readily available to you is called "file power". It's not terribly hard to calculate, and should be run on a monthly basis. Let's calculate "file power" for an online business for November 2007.

Step 1: Identify all customers who purchased online from 11/1/2005 to 10/31/2006. Example: 100,000 customers.

Step 2: Calculate the average online spend, per customer, for this audience from 11/1/2006 to 10/31/2007. Many customers will have a value of $0, because they did not purchase. Example: $75.55 per customer.

Step 3: Identify all customers who purchased online from 11/1/2006 to 10/31/2007. Example: 110,000 customers.

Step 4: Multiply Step 2 by Step 3. This is called "file power". Example: 110,000 * $75,55 = $8,310,500.

This metric is re-run, every month, using the four steps listed above. The dates used in the analysis move forward by one month.

There are many ways to complicate this measure, to make the measure more accurate. Feel free to experiment.

Looking at this simple metric on a monthly basis will be telling.

At the end of my tenure at Nordstrom, this metric pointed south, month after month. In other words, the metric suggested we were running out of "file power". Comps were still increasing, year-over-year, but the customer file was running out of gas.

The metric is reasonably good at suggesting that a downturn will occur. The metric occasionally struggles to predict future upswings --- typically, great merchandise will inspire customers to purchase, fueling the customer file, causing "file power" to increase a month or two later.

Ok, your turn. What does your "file power" look like? Did you see this business downturn coming?