Digital Profiles: Creating Each Profile

You have your data in a "spreadsheet", if you will, one row per customer, each column telling us something about that customer during the past year.

Now, it is time to generate each Digital Profile.

You are free to use whatever methodology you wish to use. I personally adore a methodology known as a "Factor Analysis", because the methodology is elegant, reducing the dimensionality of a complex dataset to a series of "factors".

Here's what I do:

1. I calculate the mean and standard deviation of each variable, for later use.
2. I run a Factor Analysis.
3. I extract three or four "Factors".
4. I run a frequency distribution, to determine the median value for each Factor.
5. I re-code each Factor, 0 = below 50th percentile, 1 = above 50th percentile.
6. I score the customer file at multiple points in time, so that I know the "Digital Profile" of the customer at many different times. This information is saved for analysis purposes.

Personally, like using sixteen Digital Profiles (four factors split into two groups each).

Enough for today. Next week, we'll dive into naming strategies, analysis and reporting, and Multichannel Forensics / Online Marketing Simulation examples.

Digital Profiles: What Data Do You Need?

For the next few weeks, we're going to talk about what I call "Digital Profiles". These are segments of customers that exhibit similar behavior. You might have 'Golden Girls', a segment of customers who are likely age 60+ purchasing via traditional channels. Or maybe you have "Robert Scobles", technology fans who eschew old-school marketing tactics.

Now how the heck do you create "Digital Profiles"? I mean, you don't have the lifestyle/psychographic/demographic data you need to do this the right way, correct?

Well, let's keep things as simple as possible.

Let's take all purchases that happened in the past twelve months. Among these orders, you know several things.

1. The method the customer used to pay for merchandise (Cash, Check, Visa, MasterCard, Amex, Gift Card, etc.) Hint --- cash/check are proxies for a 60+ year old customer.
2. The day the customer purchased merchandise (Sunday - Saturday ... yes, this matters).
3. The time of year the purchase happened (Valentines Day vs. July 4 vs. Cyber Monday ... you get the picture).
4. The merchandise divisions the customer purchased from (think about the tabs running across the top of your website ... yes, this matters, too!).
5. Average number of items per order.
6. Average price per item (hint, this is important). Items 5 and 6 yield AOV.
7. Total number of annual orders.
8. Sale customer.
9. Promotional customer (free shipping, % off).
10. Zip Code Forensics (Urban, Suburban, Rural customer).
11. Physical Channel the customer purchased from (Phone, Web, Store).
12. Advertising Channel that influenced the order (Catalog, Paid Search, E-Mail, Affiliates, Social, Mobile).
13. Did customer return more than 40% of merchandise purchased?
14. Does customer pay for expedited shipping?

This is not a finite list, use your imagination.

Create a "spreadsheet", with one row per customer ... the fourteen characteristics mentioned above are columns in the spreadsheet.

We'll stop here. If you can collect this kind of information, you have a fighting chance to create interesting Digital Profiles.

Dear Catalog CEOs: Monday Notes

Dear Catalog CEOs:

Here's a few random thoughts for you to consider.

Vendor Partners: I listened to a vendor-based e-mail marketing Vice President address an audience, and rip those who market to customers via print. This is a person who works for a company that many Catalog CEOs hire to execute e-mail marketing. Carefully scrutinize your vendor partners. Why pay companies money, only to have the company use your money to illustrate how outdated you are to an audience of prospects?

Awareness: One of the 'secrets' of this new decade is the age-old concept of 'awareness'. Last decade, you had a website, you did paid search or SEO, and you generated volume. Now that online volume has flattened out, this will be the big land-grab of the new decade. You don't create awareness by renting a name and sending them a catalog, or by sending e-mail campaigns to an opt-in list, or by executing paid search. You might be able to do it via social media, though the odds are poor (hint ... individuals can do this via social media a lot easier than brands can). You're not likely to do it via mobile. Crack this nut, and it won't matter what channel you market in.

Opt-Out Services: I was completely wrong about them, they didn't shut down the industry. Have you recently visited the most popular catalog opt-out service? Less than 1.2 million members, about the same number as last year.

Conferences: I receive a steady stream of e-mails from Catalog Marketing leaders, asking for advice on what conferences are worth attending. Let's turn this around. What do you think you need to learn? And what kind of forum would you want to learn it in? Let's think about the kind of conference that is truly needed. Send me your thoughts, click here!

Gliebers Dresses: Sitting With The Owner

Today, a private meeting with Glenn Glieber.

Glenn Glieber: "You're aware that we lost $800,000 last year, Kevin."

Kevin: "You bet."

Glenn Glieber: "Explain something to me, Kevin."

Kevin: "What's that?"

Glenn Glieber: "We've done everything we were told to do. We were told that we had to be 'multichannel'. Our paper rep would come in here and tell us horror stories, he'd remind us that Lands' End cut back on circulation in 1999 and it killed them, then he'd sell us more paper. Our printer came up with all sorts of fancy technologies that allowed us to do great things and add pages at minimal cost. We have an e-mail program, and we don't 'over-mail' because our e-mail vendor told us not to or we'd have customers unsubscribing at huge rates. ResponseShop does our matchbacks, and even though business is declining, they keep telling us our catalogs match to more and more and more online orders, resulting in us using their services more and more and more. Think about that one for a minute. Our list rental vendor keeps telling us to maximize revenue by selling our list to competitors --- so we do that, only to have a third party opt-out service hammer us publicly for sending catalogs to customers who don't want them, causing us to honor their requests, to be a slave to their opt-out process. We have a loyalty program that does not appear to be causing any increase in loyalty whatsoever. Our loyalty program is based on free shipping, something all of the consultants tell us we have to do to make customers happy, but when we do it, we don't seem to make any customers happy. We were told to jump into social media, and we did that with absolutely no results --- we could measure the sales from social media on our hands and toes. We optimized our site for search, only to have Google change the rules every twenty minutes. The USPS killed us in 2007 and now they demand that we continue to put catalogs in the mail, because doing so benefits their business, not ours."

Kevin: "So you did what the marketing experts told you to do."

Glenn Glieber: "We sure did. And here's the thing, Kevin. None of it worked. These marketing experts, they don't have any skin in the game. They make these statements to benefit their business, not to benefit my business."

Kevin: "Then why do you listen to them?"

Glenn Glieber: "Their arguments sound so convincing, and so easy. They tell us that if we have a free-shipping based loyalty program, then we'll make customers happy and loyal. You ever see one of those fancy case studies, the ones with beautiful fonts and fancy colors and the grand proclamations of unfettered profit?"

Kevin: "Have you ever noticed that only positive case studies are published?"

Glenn Glieber: "What do you mean?"

Kevin: "Well, when you read a case study, you read about a success. Who is going to publish a case study outlining ten companies that failed? Who benefits from a negative case study? It's like somebody writing a case study about playing Roulette ... the person has a 'system' where betting on '27' worked for them ... the person won $12,000 by putting $400 on '27'. Never mind that every single person who bet on '27' the next thirty times lost money, this person won, and the way the person won was by putting $400 on '27'" If a person lost by betting on '27', the person will be told that he 'did it the wrong way', that he failed because he bet $350 on '27', had he bet $400, he might have done better".

Glenn Glieber: "And then the entire catalog ecosystem decided to pick a series of numbers, only to have green zero come up ... and the house cleared the table."

Kevin: "That's what our recession is all about, isn't it?"

Glenn Glieber: "So how do I get a customer to buy from a catalog?"

Kevin: "Is that the right question?"

Glenn Glieber: "Look, I'm not going to do what Anna Carter did. I am not going to discontinue my catalog marketing program. We love catalogs."

Kevin: "But does the customer love catalogs?"

Glenn Glieber: "Where is this all going, Kevin?"

Kevin: "Oh, it's going somewhere. Your business was built off of the Baby Boomer generation. And this generation is changing habits in a way that is not complimentary to your business model. They have unlimited choice, and for the first time, they don't have unlimited money. Twelve years ago, this customer was 43 years old, spending $3,000 a year across a dozen catalogers. Today, this customer is 55 years old, spending $3,000 a year across fifty catalog and online and retail brands. And remember, this $3,000 is really $2,000 after adjusting for inflation."

Glenn Glieber: "And now the Baby Boomer generation has to save for retirement, with no home equity and a 401k account that is two-thirds what it was in late 2007."

Kevin: "So given those facts, how can you grow your business?"

Glenn Glieber: "We have to find new customers."

Kevin: "Most of the new customers are likely to be younger than 45 years old, right?"

Glenn Glieber: "Gen-X has the most money right now. But I don't get Gen-X. That generation isn't motivated by the same things that Baby Boomers were motivated by."

Kevin: "Does it matter that you don't understand Gen-X? Shouldn't you have merchandising and marketing experts who understand that generation?"

Glenn Glieber: "Couldn't we just work harder to gain market share among Baby Boomers? Couldn't I do that for a few years, fix this business, then retire?"

Kevin: "How has that strategy been working for you?"

Glenn Glieber: "Baby Boomer kids, I get them, heck, we've all had kids. I understand what motivates them. I don't understand the technology they use, but I understand how to speak with them. These Gen-Xers, there aren't enough of them in their generation to fuel growth, and nobody knows how to reach them. That's going to create problems, isn't it?"

Kevin: "What's amazing is that your generation created what is called 'multi-channel', and then Gen-X is the generation most likely to straddle old-school channels like television and catalog and newer channels like the internet and emerging channels like mobile and social media. This is what you wanted, and when you got it, you didn't know what to do with it."

Glenn Glieber: "I think we wanted Gen-X to use all of the new channels to facilitate a purchase from the channels we managed, like catalogs. And when it didn't work out that way, we suffered. I suffered. My business suffered."

Kevin: "You can't wait for Gen-Y to arrive, either, they are a decade or more away from spending the kind of money that fuels a business. So if you want to grow, you're going to have to figure out how to crack that Gen-X nut, aren't you?"

Glenn Glieber: "Can I tell you something, Kevin?"

Kevin: "Sure."

Glenn Glieber: "I'm going to bring in some private equity folks, have them look around, see if they might want to buy my business."

Kevin: "Really? Wow. Why private equity folks?"

Glenn Glieber: "You and I both know this business doesn't have much value. We've lost money for several years. Amazon isn't going to overpay for my business like they did with Zappos."

Kevin: "Does your staff know about this?"

Glenn Glieber: "No, and I haven't decided yet when I'm going to tell them. You know, I just don't have any answers left. We've tried everything, and nothing worked. Maybe somebody else can figure out how to make this business profitable, and I can at least retire with something to show for my efforts."

Kevin: "The private equity thing can be positive, or it can be ruthless. I think they'd really test the mettle of your folks."

Glenn Glieber: "Maybe it is time that my people have their mettle tested."

Rebuilding: Mistakes

We began our discussion of rebuilding projects with a sports analogy. Football teams have "systems" ... on offense, they follow a "west coast" or "spread" offense. On defense, football teams employ a "4-3" or a "3-4" defense. When players have skills that are complementary to the system being employed, success is possible.

In Marketing, we also have "systems". Systems in Marketing are based on the existing capabilities of the Marketing team. I outlined five different Marketing Personality types ... The Organizer, The Miner, The Targeter, The Futurist, and The Strategist.

Each personality type represents a "system", when compared to football "systems".

The CEO hires an Organizer when the data infrastructure is in peril, or when simple customer reporting doesn't exist.

The CEO hires a Miner when the company doesn't have insights into customer behavior beyond standardized reporting.

The CEO hires a Targeter when the company knows how customers are behaving and needs to take action upon what has been learned.

The CEO hires a Futurist when the company is good at Organizing, Mining, and Targeting, but is stuck in the past, not pushing into new micro-channels like Social Media or Mobile Marketing.

The CEO hires a Strategist when the company is great at Organizing/Mining/Targeting, and is willing to take risks with a Futurist.

Here's what I've learned during twenty-two years in Database Marketing. Many marketing failures can be linked to an inability of Sr. Management to link the Analytics Personality with the needs of the company.

Too often, the CEO looks for a person that is above-average across all five Analytics Personality traits. There might be eleven people, world-wide, who excel at each of the five traits.

Too often, the CEO assumes that an analytics individual is good at the very trait the CEO is looking to hire. The CEO wants to hire a Futurist, but only interviews Miners. This is a recipe for failure.

Too often, the CEO assumes that an Organizer/Miner/Targeter infrastructure is in place, when truly, it is not in place. As a result, the CEO hires a Futurist/Strategist who does not have the tools to succeed. Remember, a Futurist/Strategist is dependent upon an Organizer/Miner/Targeter to achieve anything.

Too often, Executives are bamboozled by the vendor community. Web Analytics packages focus on Organizer/Miner capabilities, but sometimes these brands sell themselves as Futurist/Strategist tools. Conversely, consultants offer Futurist/Strategist capabilities without ever providing an actionable Organizer/Miner/Targeter infrastructure.

Too often, individuals over-sell themselves. The Targeter confuses her skills with those of a Strategist. For instance, I tend to be a "Futurist". Sure, I have "Strategist" tendencies, and I tend to have significant "Targeter" tendencies. But for the most part, I am a Futurist. This is why I turn down consulting projects that focus on building a database infrastructure. This is why I turn down projects that focus on building customer dashboards. Those are projects that require an Organizer.

Too often, companies fail to see themselves for what they are. Catalog companies, for instance, are obsessive "Targeters". They live for linking a customer with a paper marketing vehicle. Catalog companies do not want a Futurist or a Strategist pointing them in a direction that takes them away from their core competency of targeting via paper. When a Cataloger that loves Targeting chooses to hire a Strategist, you have a mis-matched systems.

Too often, a CEO fails to hire complementary skills. A CEO that wants to make all of the decisions is well-served by hiring an Organizer. A CEO that must make money RIGHT NOW is well-served by hiring a Targeter. A CEO that is obsessed with customer service needs to hire a Miner. A CEO that is being pushed to have a five year business plan needs a Futurist. A CEO that wants to evangelize customer understanding across the entire company needs a Strategist. When the CEO fails to hire for need, the opportunity for failure is increased.

Ok, it is time for your thoughts. You've read essays on The Organizer, The Miner, The Targeter, The Futurist, and The Strategist. What questions do you have? Do you think this framework makes sense for your business? Can you use this framework to make more successful hiring decisions? Does the quiz help you identify candidates appropriately?

Rebuilding: The Strategist

You are a CEO. And you believe you have covered all of your bases. Your have an Organizer who maintains accurate, precise, and organized data that yields high-quality automated reports. You have a Miner who can tell you anything you want about how customers are behaving. You have a Targeter to makes your business a ton of profit by linking the right ads with the right customers. You have a Futurist who pushes your company in new directions, and is willing to fail most of the time in order to hit the next big thing.

It is time to rebuild your marketing department around a Strategist.

The Strategist operates on a whole different level than a Futurist.

The Futurist will push a company into Social Media or Mobile Marketing, simply because somebody has to push the company in a new direction.

The Strategist understands the need to push the company into the future. More important, The Strategist knows when to cut the cord on experiments. Most important, The Strategist knows how to integrate the skills of the Organizer, Miner. Targeter, and Futurist in a way that benefits all employees within a company.

For example, The Strategist knows when Social Media efforts need to be moved out of experimentation mode within the marketing department, and actively convinces folks in the contact center to take ownership of something that marketing initiated. The Strategist knows when Mobile Marketing needs to be something that is embraced by the Merchandising organization, and actively sells the benefits of the technology to teams that may not perceive there to be inherent benefit.

The Strategist pairs different marketing individuals with different Executives. If the Merchandising leader needs dashboard reporting, then The Strategist pairs the Merchandising leader with a Marketing Manager responsible for Organizing information. If the Information Technology department is pushing for data mining tools, then The Strategist links Marketing and IT together, in order to benefit the company. The Strategist listens to the Merchandising leader, and when clearance activities need to be pursued, The Strategist links a Targeter to the Merchandising leader. The Strategist listens to the Executive team, and directs a Futurist to explore new marketing channels that are likely to be embraced by the Executive team.

An Organizer, Miner, or Targeter focuses on what is "known", and is averse to risk. A Futurist focuses on what is "unknown", and is willing to accept risk in order to learn more about customer behavior. A Strategist possesses "intuition" ... a learned response to many years of trial and error as an Organizer, Miner, Targeter, or Futurist. A Strategist has the experience to understand how people respond to Organizers, Miners, Targeters, and Futurists, putting those individuals in places where they can be successful.

A CEO hires a Strategist only when Organizer, Miner, Targeter, and Futurist roles have been clearly defined. A Strategist is unlikely to be successful without an Organizer skilled at providing a quality data infrastructure. A Strategist is unlikely to be successful without a Miner skilled at telling the company how customers are behaving. A Strategist is unlikely to be successful without a Targeter who takes profitable action on customer insights. A Strategist is unlikely to be successful without a Futurist who pushes the company in new and interesting directions that are likely to fail.

In other words, a CEO rebuilds a marketing department around a Strategist only after a series of successes generated by building a marketing department around Organizers, Miners, Targeters, and Futurists.

Rebuilding: The Futurist

You are a CEO. You have a good customer data infrastructure in place. You have great customer reporting, filled with key performance indicators that populate a daily dashboard. Your team does an outstanding job of mining your database for new and exciting customer insights. You have individuals who are highly motivated by targeting strategies ... they actively generate sales increases and profit improvements via their techniques.

All of that is good, right? And yet, you feel like something is missing. You aren't actively moving your business into the future. You aren't actively trying new marketing micro-channels. You feel like you are stuck.

Maybe it is time to rebuild your marketing department around the skills of a Futurist.

Let me make this very clear. You do not rebuild a marketing department around the skills of a Futurist unless you already do a great job of Organizing, Mining, and Targeting. These are three areas that must be mastered before you rebuild a department around uncertain and unproven marketing strategies.

The Futurist is a very different kind of marketing leader. The Organizer, The Miner, and The Targeter are very focused on "certainty". They demand perfect and accurate data, they demand well-defined queries, and they demand targeting strategies that will yield sales increases and profit improvements. The Futurist is willing to forgo strategies that used to be successful for unproven tactics that may or may not work in the future.

Take Social Media as an example. If you polled 100 marketers, you'd find 99 that said that Social Media doesn't work. The Futurist doesn't care that 99 marketers fail. The Futurist cares about what can be learned from the 99 failures.

This is a major change of pace. The Futurist will leverage the skills of The Organizer, The Miner, and The Targeter to take action on what is learned from all of the failures.

For instance, The Futurist will aggressively pursue a Mobile Marketing strategy. The Futurist has a thick skin, and is willing to absorb punishment from a Merchandising Executive who thinks that an iPhone app is a huge waste of time. The Futurist will partner with an Organizer to integrate Mobile Marketing data into the customer database. The Futurist will partner with a Miner to understand how existing customers and new customers behave after being exposed to an iPhone app. The Futurist will partner with a Targeter to exclude iPhone app users from traditional direct mail campaigns, knowing that the iPhone app user has "moved on" from traditional marketing.

In other words, The Futurist can only be successful if s/he has the skills of an Organizer, Miner, and Targer at his/her disposal. The Futurist pushes a company in a direction that the company doesn't want to move in, but probably needs to in order to be successful in the long term.

Remember, The Futurist doesn't care about failure (whereas the Organizer, Miner, and Targeter actively try to avoid failure). The Futurist cares about what can be learned from failure.

If you have already built a marketing infrastructure that has Organizer, Miner and Targeter skills, then the next leader could easily be a Futurist. The CEO needs to have thick skin, because The Futurist is going to fail, because the Futurist is going to take the brand in unanticipated directions. Futurists tend to fail when they aren't on the same page as the CEO, or when the Organizer/Miner/Targeter infrastructure is not in place to support the direction The Futurist wants to take the business in.

The Futurist is destined to fail when the brand does not want to evolve or change.

If you feel confident that you have adequate Organizer/Miner/Targeter skills, it is time to consider hiring a Futurist to push your marketing department into the future.