Fetzer's Footwear: A Mobile Moment

Today, Lauren Fetzer, CEO of Fetzer's Footwear, asked me to attend her Executive Meeting to share stats on a mobile/iPad app hear team launched in May. As I approach her office, I notice that Lauren is listening to her iPod Touch.

Kevin: "What are you listening to?"

Lauren Fetzer: "I'm Not In Love, by Will to Power. A nicely updated version of the 10cc classic, don't you think?"

Kevin: "Alright".

Lauren Fetzer: "So that you know, we're having a bit of a kerfuffle over our iPad/Mobile app. Your data suggests that existing online buyers are switching to the app, causing website visits to decrease and causing e-commerce sales to decline, correct?"

Kevin: "Correct."

Lauren Fetzer: "And your data suggests that total sales, when you add e-commerce to app sales, are essentially flat, correct?"

Kevin: "Correct."

Lauren Fetzer: "So Connie Simpson, our CFO, is going to wonder why we waste time on shiny new toys that do not deliver incremental revenue. Penny Parker, our marketing leader, will advocate pursuit of new marketing channels. Bart Cox, our Store Executive, will probably be highly disengaged."

Kevin: "Alright".

Lauren Fetzer: "Let's go, then!"

We enter the Executive Meeting Room, where a lively discussion is taking place about why South African soccer/football fans are compelled to make noise with the vuvuzela.

Lauren Fetzer: "Good morning, everybody. I've asked Kevin to attend today and share his analysis of our iPad/Mobile app, but first, Penny, let's go over sales results from yesterday."

Penny Parker (VP, Marketing): "The website was down 6% to last year, our mobile app went bonkers again, so the online channel in total was up 8% to last year. Retail was +1% yesterday, led by our Redmond store at +11%. Alderwood brought up the rear, at -16% to last year."

Lauren Fetzer: "Bart, what the heck is going on at Alderwood, their results get worse every single day?"

Bart Cox (VP, Stores): "Don't ask, I've got it under control. And I could use some marketing help to drive traffic into the store."

Lauren Fetzer: "Kevin, can you explain what is happening between the website and the app?"

Kevin: "Sure, you've now had your iPad, Android and Blackberry apps active for a full month. During that time, apps are now up to eight percent of total online sales. What is interesting is the composition of customers who use the app. Buyers using the app are 88% existing buyers, in fact, they are among the best customers you have. In addition, overall customer retention rates have not changed in the past month, and purchases per buyer have not changed in the past month. Clearly, a portion of the file shifted their allegiance from the website to the app."

Bart Cox: "My store managers tell me that customers are using the apps to identify merchandise that does not appear in our stores, the customer is literally using the app to buy online product while standing in a store. Our store managers don't like that, because it takes a sale away from them."

Connie Simpson: "If our apps didn't increase total sales, then why are we even bothering with them? Lauren, you've always preached that we need to focus on merchandise, not on channels. Well, an app is just a micro-channel, and if it isn't adding incremental customers or isn't creating incremental sales, let's just prune the channel and save expense. We can't keep focusing efforts on all of these shiny online channels that seem to add complexity but never seem to add sales."

Penny Parker: "This isn't a channel issue, this is a customer service issue. If a customer wants to shop via a mobile app, let her shop that way, who are we to tell her how to shop?"

Ashley Zimmerman (VP, Merchandising): "But the app is a terrible shopping experience. You get this boring little screen with a handful of choices. I want the customer to see my full assortment when she visits the website, I don't want for her to be given micro-choices, her shopping experience should be like an all-you-can-eat buffet!"

Bill Bledsoe (VP, Logistics): "And this takes work, folks. My team has to divert resources to our apps, we're diverting resources away from the website. The website still drives more than 90% of our online sales, but we're spending 25% of our resources right now on our mobile apps ... we tweak them, we optimize them, we respond to customer preferences. It takes a lot of work, and we're not gaining incremental sales."

Bart Cox: "Store managers hate 'em ... they take sales away from the store. Maybe that's the problem at Alderwood, Lauren, the app is killing the store, huh?"

Lauren Fetzer: "So Connie, how would you advise us on making investments in new channels? I mean, if we follow your logic, we could conceivably never launch a new channel, just because the new channel would cannibalize sales from the existing channel, right?'

Connie Simpson: "I don't think it is that simple. Take paid search. We found that paid search cannibalized half of our organic search results. But we ran a profit and loss statement, and we learned that the paid search investment made up for itself in eight months, so on an annual basis, we were making money. That's a decision that makes fiscal sense. If our apps are simply cannibalizing existing sales and we're spending developer resources on something that isn't driving incremental sales, then I'm not confident we're making the right decision."

Penny Parker: "But Woodside Research says that by 2015 we'll see 42% of all online sales happening in the mobile channel. If we're not there, we're not learning."

Ashley Zimmerman: "Did Woodside Research predict the economic collapse? What do they know, they're always wrong, and we pay them. Geez."

Bart Cox: "Store managers hate apps."

Ashley Zimmerman: "I'm just saying that if apps takes away from the merchandising experience, then I'm not in favor of our apps. We need to present the entire merchandise assortment to the customer."

Penny Parker: "But what about the customers who don't care about the entire merchandise assortment, what about the customers who only care about the deal of the day? All they need is the app, the hop on at 11:00am and see the deal of the day and they buy that specific item. Those customers don't need a full website experience, do they? Doesn't anybody care about the customer experience?"

Lauren Fetzer: "Here's where I come out on this, folks. We've always been willing to cannibalize our own sales. We did it with paid search, which sounds crazy, right? I mean, we pay for sales that we could get for free, but we did the math, and the long-term math supported the investment. We did it with e-mail, right? We found that when we don't send e-mail campaigns, we still get 55% of the sales. But we did the math, and the math supported the investment. We even do it in retail, right Bart? We opened our Redmond store knowing full well that it would cannibalize Bellevue. So we're going to make an investment in Mobile, folks."

Ashley Zimmerman: "But the merchandise experience isn't great."

Lauren Fetzer: "Ashley, don't focus on what the experience is today, focus on what the experience should be, and then put pressure on Bill's team to make the experience be one that a merchant can be proud of."

Connie Simpson: "Do we care that app users aren't visiting the website? I mean, they're missing out on the entire brand experience, right?"

Lauren Fetzer: "I don't care. We need to learn how customers interact with this form of media, and then we need to adapt to it. Make something happen, folks. Go out there and invent the future, don't act out of fear."

Bill Bledsoe: "But my development team is being stretched thin. With 25% of the development team focusing on apps, the remaining folks are forced to deal with an ever-increasing number of website issues."

Lauren Fetzer: "We are not backing off of our pursuit to invent the future. It is obvious that our customers love the app, or our best customers wouldn't all be switching to our apps, right?"

Penny Parker: "Absolutely!"

Lauren Fetzer: "So we move forward, we learn, and we adapt."

16 Multichannel Marketing Myths

It's likely that you are already reading The Ad Contrarian. One of the most interesting things mentioned on this blog is the concept of probabilities ... that there is nothing that is certain in advertising/marketing, nothing works for everybody all of the time. In other words, when you follow a best practice, there is an "x" percent chance that it will work for you, not 100%, but "x" percent.

Nowhere is this more appropriate than in the world of marketing that we exist in. Our world is full of myths, myths based on activities that worked for one company, but cannot work for all companies.

Myth: E-Mail marketing has the best ROI (return on investment).

• This statement, of course, borders on being ridiculous. Even if you manage e-mail better than anybody in our industry, you might pull down $0.25 per recipient, generating $0.10 profit. Your old-school catalog will generate $3.00 per recipient, generating $0.60 profit. If you could only mail one piece, would you choose the e-mail campaign, or would you choose the catalog? The e-mail marketing community will take the $0.10 profit, divide it by the $0.002 it costs to send the e-mail, and claim that the 50 to 1 ROI ratio is far better than the 1 to 1 ROI ratio found in catalog marketing. This isn't even a myth, this is just plain silly! Go with the activities that deliver the most profit dollars, period.

Myth: Multichannel customers are the best customers.

• No statement has been more damaging to the craft of catalog marketing than this statement. This statement is used by the establishment to maintain existing best practices. Instead of experimenting with the future, the statement is used to keep marketers entrenched in the past by demonstrating that customers love both old-school marketing and new marketing techniques ... strongly suggesting that without old-school marketing, the new techniques won't work. It turns out that the best customers do everything in "multiples" ... they buy from multiple merchandise divisions, multiple stores, they buy multiple items per order, they buy during multiple seasons, they buy from multiple sub-brands. Catalog marketers missed a decade of innovation by chasing a myth that you could somehow generate more multichannel buyers by sending more catalogs. Be honest, did that strategy work for you??

Myth: E-Mail and Social Media are the Dynamic Duo

• Ugh. We continually see situations where the incumbent technology creates a myth, a myth designed to tie it to the technology that is destroying the incumbent. Hint: All channels have strengths, and all channels have weaknesses. Leverage e-mail based on what it is best at, leverage social media based on what it is best at, there's no need to link channels together to demonstrate the benefits of the incumbent channel.

Myth: Brands utilizing Social CRM are reaping rewards.

• Exactly what rewards are they reaping? (and why do we constantly see the phrase "reaping the rewards" these days ...how exactly are we now defining 'rewards'?). CRM is in a fight for survival ... we've been hearing about one-to-one marketing and CRM for decades and in most cases we've been blessed with endless phone trees (push nine to speak to a live person). One-to-one marketing is being obliterated by social media, customers get to choose what they want, not brands. Be wary of anything that combines the phrase "Social" with the phrase "CRM" ... it's a marketing and technology pitch not supported by the desire of a customer to be managed by a computer.
  

Myth: Bricks 'n Clicks are the future of marketing.

• Embarrassing. Who convinced direct marketers that you must have stores, and who convinced direct marketers that customers love stores? It might be the banking industry, who loves it when a direct marketer takes dollars that would have been spent generating sales tomorrow (catalogs and e-mail and search) and then funnels those dollars to interest payments to banks to cover new store loans. Bricks 'n clicks is marketing pap. If you are an operator (i.e. a person who actually tries to grow brands, not a consultant), you know that the majority of e-commerce customers will buy from a store, but the majority of store customers won't buy from e-commerce. This means that the store becomes the black hole of your business, it is a place where the rules of gravity change! Your customers eventually change behavior, become less likely to buy online, and have their entire experience dictated by the store experience. Banks who lend money to brands with stores benefit, I'm not sure that the direct marketer benefits.

Myth: Customer Centricity is the key to increased profit.

• Notice that customer centricity is seldom mentioned by businesses that provide great customer service. Customer centricity is often met with other buzzwords (one-to-one marketing, CRM). If you are fighting to make your business more 'customer centric', you are a noble and bold individual fighting a culture that doesn't care about treating customers as nicely as you believe customers should be treated. In those situations, no CRM solution makes up for the inaction of your co-workers.
  

Myth: Bricks 'n Clicks are the future of marketing.

• This topic deserves to be addressed twice! Explain this to me, folks ... explain how Amazon and Zappos and eBay and Netflix do so well without stores, while Borders and Blockbuster struggle to survive with integrated multi-channel strategies? There are always successes (i.e. Apple stores), and there are always failures (The Sharper Image, with integrated multi-channel campaigns). Everything is a probability, not a certainty. Have product that customers crave and outstanding customer service and you'll be successful no matter how you choose to market to customers.
  

Myth: Customers love interacting with brands on social media.

• Ask yourself a question ... how many brands do you like to interact with via social media? Do you love to tweet that creepy Burger King character and say "Hey, Creepy Burger King Dude, nice commercial yesterday?" Be honest with yourself, this is a confection of a marketing audience that wants the global explosion of friend-to-friend communications to extend to brand-to-customer interactions. Sure, some stuff works (like when a customer needs help and you provide great customer service via social media or when a customer wants 10% off plus free shipping) ... but for most social media marketing tactics, it is one of those cases where probabilities come into play, you have one brand that does something and succeeds, but there is only a 10% chance of everybody else doing it and having it work for them, even if they execute perfectly. Social Media for business is largely a roulette table, you put your money on the number "14", somebody spins the wheel, and then you hope that you win.

Myth: Customer Engagement is the key to unlocking profit in a one-to-one world.

• I once invited a group of co-workers to a party I was hosting at my home. One of my co-workers came with his entire family, walked in the kitchen, and grazed from the assortment of food platters, then left. One might posit that this family was engaged, they spent about ninety minutes at the party, they didn't "bounce from the home page" like other folks who came to the party and left ten minutes later. For some reason, we have this fascination with metrics that do not correlate with metrics that matter. The metric that matters, of course, is "profit" ... and when we can't find any innovative ways to increase profit, we move to other metrics we believe are loosely correlated with profit, namely, "engagement". If you can prove that there is a direct cause-and-effect relationship (i.e. customer visits, then customer buys, then customer becomes engaged, then customer becomes highly loyal only because of the engagement), then I'll buy the customer engagement argument. Otherwise, customer engagement is fool's gold, fun to measure, fun to theorize about, but uncorrelated with profit.
  

Myth: E-Commerce is the future.

• If e-commerce is so amazingly wonderful, then why does retail still account for 9 in 10 of all purchases, and has accounted for 9 in 10 of all purchases for decades? E-commerce is the logical extension of the catalog marketing model ... and we're likely to see mobile become the logical extension of the e-commerce business model.

Myth: You'll be out of business in five years if you don't jump on the social media bandwagon.

• Compare Comcast/Dell with Apple. The former brands are social media darlings, the latter is not. Which of the three brands is known for innovative products that customers crave? Hint: Great products create social media buzz ... social media buzz cannot sell average products.

Myth: Integrated campaigns are the secret to success.

• The literature is filled with marketing pap about how integrated campaigns increase response. Here's a question for all of you ... if everybody is focusing on integrated campaigns and working so hard on improving response to individual or integrated campaigns, then why has the annual customer retention rate (the % of last year's customers who purchase again this year) remained flat or decreased for the past decade? All we're doing with integrated campaigns is shifting demand from non-campaign periods to integrated campaigns. We don't measure the right things ... we measure campaign response when we should be measuring annual customer behavior. Annual customer behavior seldom changes much.

Myth: Businesses fail because decisions are made by the highest paid person's opinion (HiPPO).

• Spend five minutes with the Web Analytics crowd, and you'll be inundated with stories about how facts are continually ignored by business leadership. Horsefeathers!! Often, the story told by the analyst is incomplete or incoherent. Stories must have actionable outcomes. Stories have a better chance of success if data from non-web-analytics platforms is incorporated into the story. Hint: Executives respond to data stories when the Executive is likely to benefit from a strategy outlined in the story.

Myth: If you had the right metrics posted on a dashboard, Executives would make better decisions, and the business would be more successful.

• For some reason, we now believe that if we just display the right information to business leaders, then business leaders will make better decisions. We can have all of the dashboards in the world showing the number animals being killed in the Gulf of Mexico by the big 'ole oil leak, but that doesn't mean that the problem will be fixed any faster or cleaned up any quicker.

Myth: If you continually test and optimize your website , your business will significantly outperform the competition.

• We keep reading about tests that yield a 42% increase over the control. If this is true, and we then implement all of the positive test results, then why aren't businesses doubling or tripling in size all the time? Testing and optimization works when you are testing strategies that have a long "half-life". Testing whether to use a large green button or a small yellow button might yield a 31% increase in one strategy, but that strategy has no half-life, meaning that customers don't truly care about the strategy on a long-term basis, it was simply something that was interesting for a day or two.

Myth: Make cultivating your social media presence a ten minute task.

• This was the headline in a trade journal daily e-mail I received this week. Hint: I have written over 1,500 blog posts and have tweeted more than 3,000 times in the past four years. Nothing is easy, folks. Why are we so infatuated with easy solutions to wretchedly hard problems? Be willing to do hard work. Be willing to do innovative work. Be willing to fail.
  

Time for your thoughts ... what are some of the marketing and analytics myths out there that are routinely being debunked?

Summer Segmentation: Three Months

If there is one segment of customers you want to track every single day, it is the first time buyer with a purchase recency of 0-3 months.

Why 0-3 months?

Almost all of my Multichannel Forensics projects indicate that this is the most important window in the development of a loyal customer.

• If the customer does not visit your website during this timeframe, you may be at risk for losing the customer.
• If the customer does visit your website on a periodic basis over this three month timeframe, then pay close attention to what the customer is doing ... is the customer visiting pages on the website that suggest the customer is moving closer to a loyal relationship?

Tailor your offline marketing activities to growing the customer relationship among this customer segment.

Closely analyze the online behavior of this customer segment, and benchmark the behavior against prior years, to see if habits and behavior are changing.

0-3 month first time buyers are a critically important customer segment to track.

Dear Catalog CEOs: Loving The Craft

Dear Catalog CEOs:

If there is one theme that permeates all catalog clients I visit, it is a love for the craft of cataloging.

This love comes across in the way that the catalog mind thinks. The CEO based in San Jose thinks about an app as a way to engage a customer, and thinks about what needs to be in the app to make sure that the customer purchases something.

The catalog CEO thinks about the catalog as a way to engage a customer, and thinks about the content in the catalog as a way to make sure that the customer purchases something.

The online channel is a direct reflection of the craft that Management loves. When the merchandise is aligned with the catalog, when the catalog order form is still featured on the home page, when catalog request opportunities are actively promoted on the home page, you know that Management loves the craft of catalog marketing.

Sometimes, those who love the craft of catalog marketing poo-poo new technology. Catalog marketers have long had an adversarial relationship with Online marketers, and vice versa. Catalog marketers take swipes at Social Media, often for good reason, because the channel is nothing short of feckless at driving sales for so many brands employing the craft. Catalog marketers take swipes at Mobile, often for good reason, because the channel is in the embryonic stages of upstaging traditional e-commerce and is not yet, for most marketers, accounting for a reasonable share of net sales.

And, of course, the Online, Social, and Mobile folks constantly take swipes at Catalogers, considering the craft an artifact of a time gone by. All of this is pointless ... what matters is whether customers love the merchandise we offer, right?

It's easy to have a discussion about loving the craft of catalog marketing, online marketing, social media, or mobile marketing. All four camps have a preference for one form of marketing.

If you want to do something interesting, ask your Management team which craft they love more:

1. The craft of producing catalogs.
2. The craft of merchandising.
3. The craft of customer service.

Too often, folks love the craft of producing catalogs. This is where we find our downfall.

When management loves selling merchandise, the business hums.

When management loves providing outstanding customer service, the business hums when customers love the merchandise.

When management loves a marketing channel (catalogs, website, search, re-targeting, e-mail, social, mobile, and countless other channels) ... well, that result yields mixed results.

Fifty Multichannel Forensics projects across more than thirty catalog/retail brands clearly indicate that a love for merchandise and customer service outweigh a love for marketing channels. Love the craft of selling merchandise via outstanding customer service!

Fetzer's Footwear: Competition

Today, I am meeting Lauren Fetzer, the CEO of Fetzer's Footwear, to put crab pots in the ocean. The Dungeness Crab that are just off the coast of Madrona Island in Northwest Washington are among the most delicious you'll ever find.

I walk up to Ms. Fetzer, who is listening to tunes on her iPod Touch.

Kevin: "What are you listening to?"

Lauren: "Said I Loved You, But I Lied by Michael Bolton. Don't ask about my opinion of men."

Kevin: "Alright".

Lauren: "Hop in the boat, we're dropping off crab pots this morning."

Kevin: "It's 10:00am, you're not at work."

Lauren: "I work fifteen hours a day, seven days a week. If I want to drop a few crab pots in the ocean at 10:00am, I'll do it. And my employees can do it, too. They aren't slaves. You have to have a life. This isn't that Human Resources pap about work/life balance where you get to have three weeks of paid time off in exchange for forty-nine weeks of servitude. You can go do something at 10:00 in the morning."

Lauren fires up the boat, and we're on our way, patrolling the northern coast of Madrona Island, dropping crab pots in the ocean.

Lauren: "How do you compete with Zappos?"

Kevin: "Why do you ask?"

Lauren: "Our Executive team grapples with this issue every day. Zappos has a better selection of branded shoes than we do. They deliver shoes faster than we do. They use their scale to generate four cents of profit on every dollar, whereas our scale prevents us from leveraging that business model. So, ultimately, we can't compete with them, they've already won."

Kevin: "You sound defeated."

Lauren: "Quite honestly, it is the opposite. I think your job as a leader is to acknowledge what the competition does well, and then ask yourself if you can compete with the competition. If you can't compete with them, then you work around your competition instead of blowing straight through them. You probably watched 'Enemy of the State', where the Gene Hackman character talks about the advantages of being small. He talks about not challenging a large competitor at what they do best, you harass the large competitor by doing what you do best when you are small."

Kevin: "You have proprietary product, right?"

Lauren: "And that is a starting point. Our proprietary products sell 45% better than our branded products sell. You can't buy our proprietary products on the Zappos website. This is the problem with branded product. Eventually, somebody aggregates enough branded product that they become the resource, and when they are the resource, customers gravitate toward it, and customers talk about it. That's a swirl that Fetzer's Footwear cannot compete with. So why would I ever want to compete with that? We will carefully analyze what is selling in the branded world, and then create products that our customers have to have."

Kevin: "What about your stores?"

Lauren: "Well, we're experiencing the demise of the Mom and Pop store, aren't we? Again, how does the Mom and Pop store fight with the aggregation of branded product? It can't. So the only way we can survive is by having some branded product to complement our proprietary product. And then, the secret is to tell a story about our proprietary product that is so compelling, so unique, so persuasive that customers have no choice but to share our story for us."

Kevin: "That sounds risky."

Lauren: "Well that's life, Kevin. Should I go the conservative route and just let the business bleed a slow and painful death? Because that's what will happen if you compete with the monsters. If you were a department store, you'd never try to compete with Macy's or Penney, that's a recipe for disaster. You have to do something different, right?"

Kevin: "Seems like it."

Lauren: "So when you look ahead, and you put a five year plan out there, your marketing team and your merchandising team must have a compelling story to tell, one that causes the customer to be willing to purchase merchandise at a healthy gross margin. Apple has a story to tell, well, actually, their customers tell the story for Apple. Zappos technically lets customers tell the Zappos story, with employees facilitating the discussion. Amazon doesn't have a story, they have scale and price and availability. Best Buy doesn't have a story, they have scale and price and availability. Starbucks doesn't have a story, they have scale and price and availability."

Kevin: "How do you tell the story?"

Lauren: "I like the way Crutchfield tells a story. Their people appear to be more knowledgeable than anybody else, to me that's their story."

Kevin: "So you can do that via Social Media?"

Lauren: "Oh please. What a waste. Be honest, Kevin, do you want to be friends with that goofy Burger King clown figure from the TV commercials? Do you want to be friends on Facebook with that goon? Nobody, I repeat nobody, wants to be friends with a brand. You provide great customer service via Social Media, and then other people in Social Media talk about you. That's how you do it, Kevin, you don't create a bunch of campaigns to grow friend counts. Social Media is fool's gold as promoted by Social Media experts. You don't sell stuff by 'joining the conversation'."

Kevin: "So how do you sell stuff via Social Media?"

Lauren: "You don't. You just have to be excellent, and you have to tell a compelling story, one that people want to share via Social Media. I think you do that, you compete, by having your merchandising team craft the story. Your merchandising team must truly believe in the product, and must be absolutely compelled to share their passion with everybody on the planet. When you do that, and you do it well, and your marketing team is 100% behind the merchandising team, that's when you have success. Over the next five years, that's where we will find our way to growth. We have to have a vision for telling a merchandising story, and we have to have unique product at a healthy gross margin coupled with great customer service. That's the only way we are going to compete with Zappos online and with folks like Nordstrom in stores. You can't compete on price and assortment."

Kevin: "Ok."

Lauren: "You do this with your consulting. You don't consult on optimizing conversion rates, or in the catalog world, you don't figure out how to create a better co-op. You tell a unique story and you offer products that aren't available anywhere else and you let other people spread your story."

Kevin: "Gotcha."

Lauren: "Now let's go pick up yesterday's crab pots and have some lunch!"

The Six Stages Of Channel Death

Advertising channels go through an interesting life-cycle. The early stages of an advertising channel are full of hype. We've seen it with Social Media ... Geocities is the future, no, wait, MySpace is the future, no, wait, Blogs and Blogging are the future, no, wait, Second Life is the future, no, wait, Facebook is the future, no, wait, Twitter is the future, no, wait, Foresquare is the future ... you get the picture.

Far more interesting, however, is the opposite end of the spectrum, when channels die.

Now, obviously, channels do not die. People still place orders via fax or phone, people still purchase stuff after watching a television commercial on ABC, CBS, or NBC.

But channels are forced to morph into something else when faced with the challenges brought on by new technology ... channels that were once prominent become much, much less prominent. Let's explore the process incumbent channels go through, because the process is quite interesting!

One might call the first stage "self evidence". Sales stop growing in the incumbent channel, and it becomes self evident that something is wrong. Business leaders all know, intuitively, that the limits of the channel have been hit. Think catalog marketing in 2000, think independent music stores in 2002, think e-mail marketing in 2007, think e-commerce in 2012 or 2013 when mobile commerce truly takes off.

The second stage is "complexity". Pundits respond to inquires by business leaders by suggesting that the incumbent channel is inherently more complex than it used to be. In catalog marketing, this is represented by the "matchback", the concept that you need advanced analytics to be able to understand that the incumbent channel is still as relevant as it ever was. For e-mail marketing, the shift was to advanced segmentation and CRM techniques ... all of a sudden, you needed trigger-based e-mail campaigns based on real-time data, or you needed multiple versions of campaigns to improve productivity. In any case, one finds that sales still don't appreciably grow, even if you manage complexity appropriately ... this is a key signal, folks ... sales still don't grow after responding to complexity in an appropriate manner.

The third stage is "integration". When sales fail to grow, in spite of the addition of "complexity", the punditocracy suggest that the incumbent channel is the "peanut butter" to the "jelly" of the new channel. In catalog marketing, you are told that print is the channel that drives the customer online or in stores ... without print, you cannot make the online channel or retail channel work. In e-mail marketing, we're being told that e-mail and social media are the dynamic duo, we're being told that e-mail marketing is actually the original "social media channel", you are being informed of new terms (i.e. Social CRM) that aren't likely to resonate with actual customers. You'll begin to see a lot of case studies that "prove" that the incumbent channel is responsible for the growth of the new channel. The case studies, unfortunately, are seldom funded by the folks managing new channels, the case studies seem to come from those managing the incumbent channel. When you observe case studies coming from the incumbent channel, you know that the incumbent channel is going through "integration".

The fourth stage is "cannibalization". This is the realization that the incumbent channel is dying, that maybe the incumbent channel is truly responsible for driving sales in new channels, but eventually, the customer changes behavior and switches to the new channel ... the new channel is fully cannibalizing the incumbent channel and the pie isn't growing, meaning that sales in total are essentially growing at the rate of inflation. This is a painful stage, this is the stage that the e-mail marketers are about to enter, this is the stage that, over the next five years, the e-commerce folks will go through as mobile marketing fused with sparse elements of social media plunder traditional e-commerce. This stage is important, because it causes Management to make significant changes to advertising budgets, leading to the fifth stage.

The fifth stage is "contraction". In this stage, Management prunes budgets, actively allocating resources to new channels. This hastens the demise of the incumbent channel. Catalog marketers know all about this stage. This stage leads to many unfavorable consequences. In "contraction", business partners (like the USPS) make the unfortunate decision to increase prices in response to a contracting market, further hastening "contraction". Contraction is painful, most business leaders try to avoid contraction at any cost, diving into "complexity" and "integration" in an endless drive to avoid "cannibalization". In most cases, "contraction" is unavoidable.

The sixth stage is actually quite positive. This stage is called "acceptance". The business leader realizes that the incumbent channel is now well positioned among niche audiences, resulting in profitable opportunities across smaller but loyal customer segments. It is here that the incumbent channel finds a purpose, a reason for being. Think "AM Radio", for instance. As better technology cannibalized music, "AM Radio" morphed into a talk radio channel --- clearly a channel that didn't have the market share that other channels had, but a channel that had a purpose, a reason for being. Once the incumbent channel moves into "acceptance", the incumbent channel becomes profitable and re-emerges as relevant across a smaller but loyal audience. Management prunes the incumbent channel of unprofitable market share, allowing the incumbent channel to achieve a new (but smaller) level of prominence.

Mind you, the pundits will say that AM Radio is dead ... and the pundits are right to an extent ... except when it comes to the millions of folks who listen to Coast to Coast AM each night during the overnight hours ... to those folks, the channel that is technically "dead" is highly relevant!

The process of going from "self-evidence" to "contraction" is painful. Arrival in "acceptance" is actually quite positive. Our job is to capitalize on the profit among customers who will always love the incumbent channel, while shifting dollars to emerging channels among other customers.

The six stages are:

• Self-Evidence
• Complexity
• Integration
• Cannibalization
• Contraction
• Acceptance

Catalog marketing is about to enter the "acceptance" phase of channel evolution driven by e-commerce. Catalog marketing in 2015 will be significantly smaller than catalog marketing in 1995, but has the potential to be significantly more profitable and relevant among the niche that loves that form of shopping.

E-Mail marketing is stuck in "integration" and "cannibalization", with painful days ahead as Social Media and Mobile drive the implosion of traditional e-mail marketing. According to the Pew Internet Project, only 11% of teens use e-mail daily to send e-mail to friends, 68% of teens use e-mail for other purposes at least occasionally. So e-mail needs to evolve to respond to other channels that allow for real-time communication ... to date, leadership in e-mail marketing are not moving fast enough to respond to this shift in user behavior.

Classic Search is in the "integration" stage, but Social/Mobile Search are, in many ways, just beginning, making this a really interesting channel to watch. In Classic Search, we're just learning how customers behave after receiving an e-mail message or a catalog or after seeing a re-targeting ad. Social/Mobile Search will cannibalize the existing Search business, yielding a really interesting and exciting future.

E-commerce is entering the "self-evidence" stage in what is about to become an epic battle with the mobile channel. Pay close attention to the growth rates reported by e-commerce ... because the e-commerce folks will include mobile in their numbers (that's often a leading indicator of the "self-evidence" stage). In the next five years, e-commerce leaders will protect their channel by adding mobile volume to traditional e-commerce ... "self-evidence" comes into play when a "bean counter" asks the question ... "what happens to e-commerce sales if you strip out mobile sales?"

Think about mobile for a moment. Gilt Groupe generated 3% of their total sales off of the iPad after just three days ... think about that! eBay will generate $1.5 billion in mobile sales this year after generating $900 million last year, and their sales aren't growing much, so that's all being cannibalized from traditional e-commerce. The long-term future of traditional e-commerce is in doubt, folks ... the future of selling by distance is, and always has been, promising.

Measure the six stages of channel death, and be ready to respond to changes in customer behavior!

Summer Segmentation: Seasonal Buyers

You probably already know this, but seasonal buyers are different than other buyers.

One easy way to understand this is to segment your customers by months since last purchase. Take all of your customers with at least one purchase as of May 1, and then measure repurchase activity during the month of May. Your table might look like this:


Recency = 1 Months, Repurchase Rate = 10.0%.
Recency = 2 Months, Repurchase Rate = 8.3%.
Recency = 3 Months, Repurchase Rate = 7.7%.
Recency = 4 Months, Repurchase Rate = 7.2%.
Recency = 5 Months, Repurchase Rate = 4.8%.
Recency = 6 Months, Repurchase Rate = 4.7%.
Recency = 7 Months, Repurchase Rate = 5.9%.
Recency = 8 Months, Repurchase Rate = 5.5%.
Recency = 9 Months, Repurchase Rate = 5.2%.
Recency = 10 Months, Repurchase Rate = 4.8%.
Recency = 11 Months, Repurchase Rate = 5.1%.
Recency = 12 Months, Repurchase Rate = 5.5%.
Recency = 13 Months, Repurchase Rate = 5.1%.
Recency = 14 Months, Repurchase Rate = 3.9%.
Recency = 15 Months, Repurchase Rate = 3.6%.
Recency = 16 Months, Repurchase Rate = 3.3%.


Look at the red rows, at months five and six. These are Holiday shoppers, and Holiday shoppers often do not repurchase at the same rates that do other customers. Here's a place to reduce marketing expense.

Look at the green rows, at months eleven through thirteen. These are Seasonal shoppers, they last purchased similar product about one year ago. These are customers that require increased marketing expense, because this is the time when you can "win back" the customer, as the vendor community likes to say. These customers are likely to buy comparable product one year later.

This is about as simple as segmentation gets, and yet, it's completely actionable and it makes intuitive sense.

So go use this tip to grow your business!