The Most Effective Booklet I've Written, To Date

The pundits are going to tell you how you should do things.

Or you can blaze your own trail.

In 2011, this booklet, Hillstrom's Catalog Marketing PhD, is responsible for nearly half of the projects I've worked on.

Publishers wouldn't touch this ... it's just 40 pages, but it shows you how to make a $100,000,000 business about $1,000,000 of additional profit, on an annual basis.  That's not too shabby, is it?


More than promoting the booklet, I'd like for you to take the lessons of the booklet with you.

• Pundits tell me all of the time that publishing books, and especially self-publishing books, is a worthless, pointless activity that doesn't pay for itself.  Well, it does pay for itself, not in book sales, but in consulting projects.
• Pundits tell you that "print is dead".  Well, more than half of the copies of this book have been sold via print.
• Pundits tell you to never, ever, give away or cheaply sell all of your proprietary methodology.  Wrong!  Any of my competitors could easily implement my ideas.  They choose not to implement them.  Go figure.

These lessons apply to your business, as well.  Everybody is telling you what you must do.  Don't do it!  Chart your own course to the future.  And be willing to share a bit with others, try to help other people!


Hillstrom's Catalog Marketing PhD:

• Print, $7.95 at Amazon.com.
• Kindle, $2.99 at Amazon.com.

Summer Schedule

On the day after Memorial Day, the blogging world changes.

Maybe you'll find this hard to believe, but readers actually find other things to do during the summer months.  It turns out that keeping up-to-date with industry-leading insights is not the top priority of a marketing/analytics expert when it is sunny and 77 degrees outside.

So, as I have done every year, I will reduce article frequency between Memorial Day and Labor Day.

You can expect the articles you've grown to know and love each Monday, Tuesday, and Thursday.  If there are situations warranting updates, I will add posts as appropriate.

It's time for some balance in your life.  Keep up-to-date with my musings, and spend a little more time enjoying the nice weather!

Hillstrom's 2011 Almanac: Still Relevant!

You probably already have your copy of Hillstrom's 2011 Almanac, right?

If you don't, well, here's the good news ... the factoids and comments for the first five months of the year are still relevant!

The Almanac has 365 factoids, comments, tips, or criticisms that can help you navigate the challenges we face in 2011.

Give the Almanac a try!

• Print, $14.95 for 170+ pages of marketing and analytics fun!
• Kindle, just $7.95 for a veritable plethora of digital enjoyment!

Loyalty Programs

Loyalty programs are popular, aren't they?

Too bad that they are often ineffective.

The key to a good loyalty program isn't the loyalty program.  Rather, it is the inherent customer behavior that is tied to the loyalty program.

Loyalty programs have a chance of working under the following conditions:

• An annual repurchase rate of 60% or greater.
• Customer places five or more orders per year.

In these situations, the customer has a need that can be met by a loyalty program.  Maybe the customer wants to feel special.  Maybe I want to sit in Economy Plus on United.  Maybe the customer wants to save 5% or 10% on a purchase.  Maybe I want to pay six cents less on a box of Mac 'n Cheese over the course of one hundred boxes over the course of a year.

In any of the above situations, the benefit is amplified by purchase frequency.

Too often, I witness loyalty programs tied to infrequent customer behavior, as if the reason the customer doesn't buy more often is because there isn't a loyalty program.  Wrong.  If a customer has a 35% annual repurchase rate, and only purchases 1.3 times per year, there's very little incentive for the customer to buy more --- the customer simply doesn't have a need to buy more often.

Loyalty programs have the best chance of working when the customer is already pre-disposed to buy numerous times per year.

The Most Popular Topic of 2011, Based on Your Feedback

Through nearly 1,900 blog posts, we've discussed a lot of topics.

Few topics have generated the interest that the topic of age generated over the past three weeks, both positive, and negative.

Here's the image that got it started:

And here is the image that got people thinking:

You offered a lot of feedback, and a lot of questions.  Let's review your questions:

Question:  Obviously, you work with a set of brands that are not representative of all catalogers, correct?

• Maybe so, maybe not.  Catalogers with a retail presence have a different set of dynamics, as different demographic profiles enter stores.  I'm confident, based on what so many of you have told me, that this is a problem for somewhere between 65% and 85% of catalog brands.

Question:  You can fix this problem with social media and a strong mobile or tablet presence, correct?  Just modernize!

• Oh boy.  Sometimes, we just don't think about what we're recommending.  Something like 5% of the population owns a tablet.  Only 1 in 3 Americans own a smartphone.  And the folks who own tables or smartphones are not currently in the catalog "wheelhouse", if you will.  In other words, it isn't easy for a catalog brand to attract a scalable audience of 33 year old tablet-toting social media experts.  Conversely, a 59 year old catalog shopper over the telephone isn't likely to squint through the process of ordering via a 2" smartphone screen.
• In other words, I don't think catalog brands fix this problem with social media and a strong mobile or tablet presence.  That doesn't mean the cataloger doesn't try things, it just means that there is an "audience disconnect" that cannot be easily resolved.

Question:  I know of a company that has a 32 year old customer, and they have a vibrant catalog business.  So is it possible, Kevin, that you're dealing with a biased sample?

• Yes, it is possible.
• Now, is it also possible that there are seven catalogers with 55-65 year old customers for every one cataloger with a 32 year old customer?
• We all suffer from sample bias.  We see what we want to see.  I am confident that there are more catalogers with the 55-65 year old customer problem than there are catalogers with a 32 year old customer base.

Question:  Kevin, this isn't a problem.  It's simply the audience that is attracted to a catalog brand.  Why not go out and acquire as many 55-65 year old customers as possible?  I think this is a good thing.

• It can be a good thing.  If the average age of your customer has been 59 years old for the past decade, you are about to have the biggest cohort of 59 year-olds move through your sweet spot in history.  Start printing money!
• But if your customer was 49 years old in 1998, and is 59 years old today, then you have a serious problem brewing.  Look at the productivity in the second image ... productivity declines with age, as your customer moves into the 60-69 age range, productivity falls off of a cliff.
• You keep telling me that customer acquisition is getting harder and harder ... that only makes sense if you end up attracting a 55-64 year old audience that spends less than other demographic cohorts, while the 35-54 year old demographic tunes out catalogs, right?

Question:  You're always talking about B2C.  This isn't a problem in B2B, is it?

• I'll grant you this ... B2B issues are different than B2C issues.  I'd rather have a relationship with a 62 year old decision maker in B2B than a 62 year old customer in B2C, no doubt.

Question:  How do I create a catalog that fixes this problem?  In other words, how do I create a catalog that speaks to a 29 year old customer?

• I get this question a lot.
• I would not try new creative that speaks to a 29 year old customer, then send it to a 62 year old customer ... I've witnessed that one too much over the past twenty years to care to mention!
• I'm not convinced that the majority of us can create a catalog that resonates with a younger customer.  Some of us can, you are always quick to point those brands out to me, but by and large, it's hard work folks, it's hard work!

Question:  Let me restate my question.  Should I extend my brand to a younger audience?

• Your brand and your marketing attract an audience.
• It is my opinion that if you want to attract a younger audience, you create a brand specifically for a younger audience.
• It is my opinion that catalogers, through the style of marketing catalogers practice, attract an older audience.  This isn't fixed by going younger, you simply alienate the older audience and you struggle to attract the younger audience.

Question:  Is this my fault, or a simple aging of the population?

• According to the US Census Bureau, the average age of a person in the United States is 35-39 years old.
• This means that the average age of a consumer is somewhere between 40-49 years old.
• In many ways, this is our fault.

Question:  Why is this my fault?

• By and large, we bought into a concept called "multichannel".  This concept sounded seductive, and given the landscape of the world in 2000-2004, it made sense.  We were told to keep mailing catalogs to customers, because catalogs caused customers to shop on the internet.
• In the past five years, the world changed.
• Today, we have a disconnect, a disconnect that is our fault.
• Customers age 60+ largely respond to catalogs as they always have.
• Customers age 50-59 are willing to shop online after receiving a catalog (these customers were 40-49 when we were told we must be "multichannel" ... so that makes sense).
• Customers age 40-49 tend to go in a lot of different directions ... shopping online after receiving catalogs, or being willing to enter the magical world of social commerce, or using Google as a Shopping Sherpa, or buying after receiving a 20% off plus free shipping promo via e-mail marketing.
• Customers under age 40 do a lot of different things as well, but the catalog-inspired aspect of shopping drops off significantly as the customer ages.
• Co-Ops, who in many cases contribute 50% or more of the new names to catalog brands, have unconsciously (or consciously) targeted 55+ rural customers.  These customers are the easiest to track, because they shop via keycodes over the telephone.  Our dependence on co-ops provides a feedback loop that results in a skew in our customer base to 55+ rural shoppers, who demand creative and merchandise that works among 55+ rural shoppers.
• We never addressed the "free shipping problem".  Younger customers have addressed this problem, they found Amazon and Zappos and Social Commerce brands that offer free shipping.  Our way of addressing this was to integrate all channels, charging $14.95 for shipping and handling, alienating a younger audience.
• Take a look at catalog creative.  A professional recently told me that catalog creative looks like something that "old people" would like.  Just look at your creative.  Which audience do you think your creative will attract?

Question:  I don't append age data.  How do I know if my customer base has aged significantly?

• If more than 2% of your direct-to-consumer orders come in via the mail, with a check inside the order form, your customer base has aged.
• If more than 40% of your direct-to-consumer orders are taken over the telephone, your customer base has aged.
• There are, obviously, exceptions to these guidelines.

Question:  We're multichannel, so this doesn't impact us, right?

• The vendor community sold us a bill of goods on this multichannel thing.
• By tethering our online experience to the catalog, we limited our ability to be relevant to younger customers.
• By limiting our ability to be relevant to younger customers, we found that older customers responded to our marketing activities.
• This caused the co-ops to optimize their models around older customers who responded to catalog-tethered online activities.
• As a result, we acquired older customers at a disproportionately fast rate.
• As our customer base aged, we calibrated our merchandise and creative to appeal to this older audience.
• Our merchandise and creative did not appeal to younger customers as much.
• This feedback loop keeps on self-reinforcing upon itself.
• Get the picture?  This is what multichannel marketing did to us.  We just couldn't have known this in 2001 when we went down the multichannel path with vim and vigor.

Question:  But social media and mobile don't work, so what do we do?

• Social Media and Mobile are not likely to work among a 55-64 year old customer.
• So, we have to make a decision.  Here's my opinion:  We ride the Baby Boomer generation into the sunset with our catalog marketing activities.  We craft new brands that resonate with a younger audience, using the profit thrown off by the catalog business to fuel the startup.  Or, just milk the profit generated by a 55-64 year old customer, until that audience is no longer productive, there's nothing wrong with that.
• Honestly, I don't think we solve this problem by trying to calibrate our brands to be attractive to younger customers.  We either ride one audience into the future, or we attempt a new brand focused on younger customers.
• This is simply my opinion.  Your mileage will vary.

Time for your thoughts.  As I mentioned, the two charts at the top of this post have stimulated more conversation than almost any other topic I've written about.  How would you address this issue?  Do you believe this isn't an issue?  Tell us what you think.

Dear Catalog CEOs: 10 Non-Problems

Dear Catalog CEOs:

Last week, we talked about ten problem that will make life difficult for catalog brands.  Today, we talk about what people talk about ... perceived problems that aren't really that important.

Number 10 = Privacy:  E-commerce wonks are bent out of shape about "do not track", as if the worst thing that could happen to the world was a law that prevented two-hundred companies from dumping cookies onto your computer when you decide to visit a dictionary website to look up the meaning of the word "delitescent".  Just because you cannot track a customer doesn't mean the customer will not purchase from you.  Ever been to a Dunkin Donuts and paid cash for a cruller?  Dunkin Donuts can't track that purchase back to you without face recognition software (oh boy), and yet, you shopped at Dunkin Donuts and Dunkin Donuts generated profit from your transaction.  Privacy is a non-issue.  Do what is right for the customer.  If the customer doesn't want to be tracked, don't track the customer.  Focus efforts on generating sales and profit though merchandise excellence.

Number 9 = Multi-Channel:  You're told you have to be in all channels and that you have to be all things to all people.  Nonsense.  Now, be honest.  Have your sales increased at a rate that is greater than inflation since 2000, when the multi-channel mantra was beaten into us by vendors who benefit from multi-channel strategies?  Remember, you were told that multi-channel customers were the best customers, you were told you would "reap the rewards" of a loyal customer base if you were all things to all people.  Did you "reap the rewards"?  Not many did.  Going forward, focus your efforts on "anything that works"!  If you cater to a 26 year old customer, then, by all means, dive into social and mobile like your hair was on fire.  If you cater to a 62 year old customer, might it make sense to identify merchandise that a customer nearing retirement without the funds to support a modest lifestyle might appreciate?

Number 8 = Integration:  You are told to integrate all of your campaigns.  Horsefeathers!!  Again, do what is right for your customer.  There are a million failed integration-based campaigns that nobody ever talks about.  There are fifteen successful campaigns that are publicized constantly.  You are being misinformed.  It is really hard to leverage the benefits of each channel if you are required to homogenize each channel.  Use each channel based on the strengths of each channel.

Number 7 = Retail:  Retail destroys catalog brands.  You do not need to open a store.  When you open a store, you load up debt, and you require store traffic to cover your debt load.  Eventually, you'll gut your catalog circulation, or you'll marginalize your creative in order to appeal to a retail customer, destroying catalog/online productivity.  You'll acquire a ton of retail customers who have no intent to ever buy from your website or catalog.  In other words, you're "hooped", you become something other than a cataloger, you become a slave to comp store sales, and you become a slave to debt.

Number 6 = Youth:  So many brands are told that they have to attract a younger customer.  This is a mistake, a non-problem.  If your catalog brand attracts a 67 year old customer, well, you've got a veritable plethora of Baby Boomers about to enter your sweet spot.  There is nothing wrong with cashing out on the Baby Boomer population, then retiring your brand.  You are not going to attract a mass of 26 year old customers to a catalog brand.  If you truly care about catering to the youth market, create a separate, vibrant, youth-oriented brand ... profit from your 67 year old audience via catalogs, craft a separate brand to attract a different audience.  Do not try to make your current catalog brand relevant to a younger market, it's a strategy that is not likely to work.

Number 5 = Mobile:  You are not going to be out of business in six months without a vibrant mobile presence.  I read a quote from a technology expert in November 2010, he mentioned that retailers will be out of business in six months if they don't get on the mobile bandwagon.  Is anybody holding that person accountable?  I don't see companies shutting their doors in May 2011 because they failed to capitalize on mobile, do you?  Mobile is a "needs based channel".  This means that there's a subset of the population that "needs" information immediately.  If you're in a retail store, and an item is sold out, you have a "need" that can be met by a mobile solution.  If you are bidding on an item on eBay, you have a "need" to see if you won the auction, mobile is perfect for that.  If you are Newport News and you are selling a dress, well, does the customer need to know anything about that dress at one specific moment in time while sitting in traffic on I-494 outside of Minneapolis?  What is the need that mobile solves for your business?  If you cannot answer that question, then it is unlikely that mobile is terribly important to your brand, in the short-term.

Number 4 = Integrated Databases:  Now, I'm the exact kind of person who benefits from analyzing integrated databases, chocked full of data across all channels.  But be honest.  Where do you make the most profit in your brand?  That's right, by selling merchandise that customers love!  You can bend yourself into a pretzel trying to link-up online visitation data to your e-commerce order entry system, or you can have your analyst spend a little time figuring out why certain items are more profitable than other items.  In the past decade, we've completely gotten away from what it is that fuels our business ... the thing that fuels our business is merchandise productivity.  Customers must love what we sell, or everything else is pointless.  Sure, integrated databases are important, but they are not a priority!

Number 3 = Social CRM:  Have you heard about this movement?  The vendor community is busy marrying a failed concept (CRM) with a sexy channel that seldom delivers profit (Social Media).  It is not a problem if you do not have a Social CRM solution to manage highly engaged consumers.  If you don't have a solution, go old-school ... pick up a phone and call a customer.

Number 2 = Data Driven Culture:  This is a non-problem for most marketers.  You're constantly being told by the vendor community that you must have dashboards with KPI's (key performance indicators) that determine what your strategy should be. Goodness.  Marketing and Merchandising innovation fuel the success of a business, with dashboards and KPI's tracking the success of Marketing and Merchandising innovation.  Focus your efforts on Marketing and Merchandising innovation!!

Number 1 = The USPS:  Yes, I said that this is a non-problem.  This is a case of fear ... FEAR FEAR FEAR FEAR!  Sure, it won't be pretty if it costs 35% more to apply postage to a catalog, but it won't be the end of the world.  See, there's this unique thing called "the internet", a magical place where you've spent more than a decade building out the discipline necessary to generate sales.  Sure, it will be hard to find new customers without mailing catalogs with the assistance of Abacus-fueled names.  But you have leverage, folks.  Tell your favorite USPS advocate that you will simply cut them out of the picture if they want to sock it to you.  Show them that you'll go from twenty in-home dates a year to ten, and you'll trim circulation per drop by 30%, resulting in a 65% drop in circulation.  Sure, this will be painful to you, but again, you've worked hard to figure out how to drive e-commerce sales without the aid of a catalog over the past decade, so you can manage this, right?

Ok, your turn ... what are the non-problems you'd like to point out?

Age and Productivity

You probably have age data appended to your database, correct?

If you have this data appended to your database, then take a look at annual customer spend by age.

This graph depicts a common relationship.  Customers age 40-49 are the most productive customers.

Catalog brands loved this fact back in 1995, when the average catalog customer was somewhere between 40 and 49 years old.

Today, the average catalog customer is somewhere between 50 and 59 years old, often older.  These customers are 10% less productive than are customers with age between 40 and 49 years old.

For many catalogers, the customer is aging 0.5 to 1.0 years for every year that passes, meaning that in five years, the average customer is going to be 55 to 64 years old, and in ten years, the average customer will be 60 to 69 years old.

Take a look at your merchandise productivity over time ... if productivity is dropping by 2-4% per year, and your customer is in her fifties or sixties, well, you've quite possibly identified the reason why productivity is on the decline.