Great Moments In Database Marketing #9: The Square Root Rule

This is the second in a ten part series of key database marketing moments that shaped the focus of The MineThatData Blog.

We go back to 1991 for the origin of The Square Root rule.

"Back in the day", catalogers were experimenting with statistical models. At Lands' End, statistical models had been used to decide who received catalog mailings since at least the mid 1980s.

But statistical models can make deciding how much a segment of customers might spend a real headache.

Consider this example.

• A segment has 10,000 customers.
• Only 8,000 customers were selected by the statistical model to receive the mailing.
• The segment of 8,000 customers spent $3.00 per customer, $24,000 total, when mailed the catalog.

How much would the total segment of 10,000 customers have spent, if all customers were mailed the catalog?

It would take nearly seven years to find a simple solution to this problem.

Honestly, one can use "rules of thumb", or statisticians can create unique models for every catalog to solve this problem.

After witnessing the results of maybe 300 catalog mailings over a seven year period of time, a simple solution was created. In 1998 at Eddie Bauer, we developed "The Square Root Rule".

• The 8,000 customers above spent $3.00 per catalog, $24,000 total.
• If 10,000 customers would have been mailed, total spend would increase by the following factor:
• (10,000 / 8,000) ^ 0.5 = 1.25 ^ 0.5 = 1.118.
• In other words, 10,000 customers would have spent $24,000 * 1.118 = $26,832.
• Dollar per catalog for 10,000 customers = $26,832 / 10,000 = $2.68.
• The remaining 2,000 customers would have spent $2,832 / 2,000 = $1.42 each.

By simply knowing the percentage of customers mailed in each segment, this simple rule allowed the circulation analyst to "guesstimate" what might have happened if all customers in the segment were mailed.

The Square Root Rule applies to advertising budgets and page counts and items offered per e-mail campaign ... basically any situation where you have limited information and no good history to estimate what might happen.

Of course, the approximation has numerous limitations. Don't use it to extrapolate too far ... if you only mail 10% of the customers in a segment, the equation might fail. If you want to mail 3x as many customers as were mailed last year, the equation will fail.

But for many instances, this equation solves problems, especially if you have limited data and you don't have a statistician sitting next to you, awaiting your beckon call!

Great Moments In Database Marketing #10: The 3/2/1 Rule

During the next two weeks, we'll explore some of the unique things teams I've worked with have learned during the past twenty years about customer behavior.

#10 is the "3/2/1" rule. I once worked with a large retailer that did a spectacular job of linking website visitation data with store visit survey information and purchase data across all channels. The retailer learned that multichannel customers visit the e-commerce website three times a month, shop the store two times a month, then purchase once a month (with 85% of the purchases occurring in-store, 15% online).

How does your view of customer behavior change when you know this fact? It should cause your head to pop with possibilities!!!

First of all, you realize that your Web Analytics information is largely incomplete. Who cares if the visit-specific conversion rate is 3.04838290%? Within this project, we realized that conversion, when measured on a monthly basis (counting e-commerce and store purchases) was utterly staggering. Staggering!! More than ten times the visit-specific conversion rate.

All of a sudden, that cross-channel inventory system sounds like a good idea!

The web analytics corner of the world doesn't have enough data to tell you about the true power of your e-commerce website. You need your Business Intelligence team (and they better know SAS or SPSS, not just basic tools like Business Objects or MicroStrategy) to lead you down this path. And most important ... you need your BI team to mentor your Web Analytics team, you need them to teach the Web Analytics folks how customer behavior works across and between channels.

The true power of your e-commerce website is measured in a monthly or yearly conversion rate, combining conversions from all channels. You'll never view your website (or your analytics team) the same way, once you identify your version of the 3/2/1 rule!

Do You Make A Living Blogging, Book Conversion Rates, Social Media Stuff

I purposely wrote a bunch of separate posts about ACCM to see what you were most interested in. Here are the top three articles.

• ACCM 2008: Social Media
• ACCM 2008: Lehman's Country Life And Lenser Marketing
  
• ACCM 2008: Encouragement

You consistently enjoy good news and applications of social media to the retail and catalog world, don't you?!


Speaking of metrics, you might be interested in learning what happens when you sell your own books to the public.

• Folks who click on the Amazon links of the Multichannel Forensics and Database Marketing books convert at an approximate rate of 4.5%.

• Folks who click on the Lulu link for Hillstrom's Multichannel Secrets have a 7% conversion rate, to-date.
  

This brings us to the "Do You Really Make A Living With Your Blog?" question I fielded, oh, I don't know, maybe 177 times at ACCM. This social media stuff, coupled with Google, drive an unusual and interesting funnel of activity. Since I started writing the blog in 2006:

• I wrote more than 800 posts, and three books, driving ...
  
• ... nearly 100,000 visits to The MineThatData Blog. Forty percent arrived via natural search (Google), forty percent are from various links on the internet (mostly other bloggers, businesses, and organizations). The visits yielded ...
• ... close to 1,200 subscribers. The average subscriber reads one out of every two posts I write, about 200 per year, 240,000 annual article reads in total. These articles are part of a relationship-building process, ultimately yielding ...
• ... between six and twelve projects a year that are fully or partially attributed to the blog (and books I've written).
• My Total Marketing Cost = $1,100 over two years. It doesn't take a rocket scientist to calculate the ROI, does it?
  

Two things, folks.

• If I can do this, anybody can do this. I'm not doing anything special here.
  

• It is amazing that more businesses, crazed over reducing expenses in a sluggish economy, don't do this ... especially in the B2B world.

The funnel I illustrated in this post will be the primary focus of my talk on Non-Traditional Customer Acquisition at the MeritDirect Business Mailer's Co-Op and Interactive Marketing Conference. My talk is scheduled for 10:00am on Friday morning, July 11.

Best Buy and B&H Multichannel Marketing

At ACCM, I heard a half dozen speakers drill the multichannel marketing script into the permeable heads of honorable conference attendees.

So today I am looking to purchase a camcorder. B&H sends me a catalog, a nice multichannel piece. So nice that it drives me to Best Buy to physically look at the camcorder. There, I find another camcorder I like. I notice that the price of this item appears expensive.

I go home, look at the Best Buy website, and see that the price is consistent between stores and online. Multichannel advocates rejoice! But the camcorder is still expensive. A price comparison reveals that the item is 20% cheaper at B&H, and 25% cheaper at Amazon.com.

The item will be purchased at Amazon.com.

Industry leadership continues to harp on the fact that multichannel marketing works. And today, it did work. A catalog from one brand led to a store visit at another brand, which led to an online search for the cheapest price, leading me to buy the camcorder from an online pureplay. Demand siphons out of the multichannel value chain, into an online pureplay. The multichannel marketers pay the freight for retail square footage and paper-based marketing, but lose the sale to a low-cost online pureplay that does not execute traditional advertising strategies.

An entire industry is missing the point of multichannel marketing. Pretty catalogs, integrated e-mail campaigns, and cross-channel inventory alignment is nice.

But multichannel marketing is pure pap, feckless when confronted by convenience, fast shipping, and cheap prices.

And worst of all, the multichannel industry fuels this trend by advertising the items that ultimately are purchased at pureplays that don't employ traditional advertising.

Woo-hoo!


Aside: A Best Buy employee told a customer that he wanted to take her television outside to her car because it was too hot inside the building. She asked the employee why they couldn't turn on air conditioning. He said they couldn't because climate control was manned from Minneapolis. If that story is true, then Best Buy management is really knocking down some silos, huh folks?!!

ACCM 2008: Lehman's Country Life And Lenser Marketing

Glenda Ervin, VP of Marketing at Lehman's, shared information about a blog that supports her business in a presentation hosted by Lenser Marketing.

The Blog: Lehman's Country Life.

The most popular question I fielded this week was "... how can I save money mailing catalogs to online shoppers?"

The second most popular question I fielded this week was "... does all that social media and blog stuff really work?"

I'll address the latter question in an upcoming post, illustrating how a small business generates leads via a blog.

And I will say this about Lenser Marketing. I often disagree with their views on Multichannel Issues. But they do take a leadership role on the topic, and they do a reasonable job of measuring multichannel issues. They deserve to be commended for that.

Their newsletter is also worth a read (click here for the Lenser Newsletter).

ACCM 2008: Channel Sales

Bill Bass of Fair Indigo shared a fact "... half of our online sales are driven by catalogs".

He also quoted the distribution of sales by channel.

We combine the two pieces of information for the following table:

Fair Indigo Sales Distribution
	Online	Catalog	Store
Channel Recording The Sale	70.0%	25.0%	5.0%
Channel Driving The Sale	35.0%	60.0%	5.0%

This is typical of many Multichannel Forensics projects I work on. It is popular to assume that catalogs drive 80% or more of online sales (via matchback analytics). Multichannel Forensics often illustrate trends comparable to those at Fair Indigo.

When this happens, there's cost-savings "a plenty" when executing catalog marketing to online customers.

ACCM 2008: Encouragement

I will say that the majority of the attendees I've spoken with have a certain pluckiness to them, a positive attitude.

Sure, there's some frustration and sarcasm. But by and large, folks have a general determination to persevere.

Most folks speaking with me about Multichannel Forensics projects are interested in mailing fewer catalogs to online customers. If a cataloger mailed twelve catalogs a year, they are looking to mail between four and eight catalogs to online customers, the full complement of twelve to pure catalog buyers using the telephone channel. Gone are the days of "Lands' End tried that in 1999 and it didn't work".

By and large, folks are talking about not saving money, but reinvesting it in various customer acquisition activities. Attendees learned plenty about online acquisition activities during the conference.

Whether it be green initiatives, huge increases in postage, third party opt-out services, or a lousy economy, the folks I spoke with are ready to take on challenges with a mostly cheerful attitude, are ready to begin the process of limiting mailings to those not interested in catalog marketing. A confluence of events appear to be moving multichannel folks down a path of advertising re-allocation, spending money online instead of in traditional print.

And some vendors are ready to help. Numerous exhibitors offered variable print solutions as well as print-to-digital conversion services. There is the possibility that catalogers will go beyond e-mail, using alternate digital technologies to communicate with customers interested in something beyond the static e-mail campaign.

Many other vendors appear to be struggling to "defend turf". Hearing that attendees are looking to cut catalog marketing expense, some vendors told me they are encouraging catalogers to not cut expense, but instead, mail catalogs smarter.

And all you e-mail bloggers and vendors, here's some encouragement for you --- you basically had no presence at this conference, in the exhibit hall or among hosted sessions. An industry looking to become more green, more digital, needs your help. You have an opportunity to help folks, I encourage you to get involved!

Many attendees talked about landing page merchandising --- sensing that customers are overwhelmed with choosing one item out of 248 that are available within a merchandise line. Landing page merchandising is highly correlated with catalog merchandising --- offering your best products and services, merchandised the way a customer likes to shop. One can see a future where catalog expertise transforms drill-down or search-based e-commerce. The combination of paid search and landing page merchandising is ideally suited for the direct marketers in attendance.

Many attendees told me that their focus is on "the brand", not "the catalog". This is a fundamental change from years past. Folks told me that customers feel connected to a brand that operates with honesty and integrity. A shift in focus appears to be in the early stages of development.

Overall, the attendees left me feeling encouraged about where things are heading. Three or four shocks to the system in the past year have some catalogers moving in new directions. That's encouraging!

ACCM 2008: Multichannel Marketing

I continue to sense a disconnect between the perception of multichannel marketing between conference attendees, and vendors.

An attendee told me that he likes testing different concepts in different advertising channels and different physical channels. Each channel offered unique opportunities for the customer.

A vendor told me that we must offer the same merchandise at the same price in all channels. Another vendor mentioned that all customers are multichannel customers.

A speaker told the audience that products should be available in all channels, then mentioned that various items are not advertised in catalog because you cannot afford to market all products.

A vendor told me that the vendor community must lead the attendees on this issue, because attendees struggle with the multi-dimensionality of this topic.

So many attendees shared unique quirks in their business model that require multichannel marketing strategies that are fundamentally different --- different by business, different across channels, different across price points.

I become more convinced that the attendees are actually ahead of the vendors on the topic of multichannel marketing. While vendors make theoretically accurate arguments about "silos", attendees deal with the realities of a world that doesn't easily accommodate sameness everywhere. Vendors may be accurate in wishing that brand better measure multichannel activities. Attendees appear much farther ahead in testing strategies without the constraint of "sameness".

ACCM 2008: Social Media

In one session, the speaker asked the audience of about one-hundred catalog/retail/online (aka Multichannel) marketers if they used Google Alerts to tell them when customers or other individuals were speaking about their brand.

Not one person raised their hand.

An attendee told me ... "I just don't understand this viral stuff. I'm supposed to just trust that customers will spread my message via word of mouth?" When we've been raised to push a message to customers, it isn't easy to trust that others will do the work for us, if the message is worthy of spreading.

Another attendee told me ... "We jumped all over e-commerce ten years ago. We're going to be the last to jump on social media."

This theme came up several times ... "Why would I plunge into social media when we can't even get the resources to manage our website properly?"

Monitoring your brand is free and it is easy. Assign one person the job of monitoring what folks are saying about your brand. Oftentimes, it is good to pick a gifted person in your contact center. These folks listen to customers every day. Change the focus of this person --- to listening to customers via social media instead of customer complaints submitted via existing channels.

The attendees who spoke with me suggest social media is down the list of priorities, but is high on the list of things to pay attention to. And that is a shame, given that monitoring social media is free, and participating only requires time.

More than anything else, I sensed that the attendees were so buried under other topics that social media represented another competing priority --- one that isn't guaranteed to generate a positive ROI.

And catalogers love generating positive ROI.

ACCM 2008: Changing Focus

It's been six years since I attended this conference. The range of speakers and topics changed over time.

• 23% of the sessions focused on circulation strategy and data.
• 21% of the sessions focused on multichannel marketing.
• 15% of the sessions focused on website design and website issues.
• 13% of the sessions focused on online marketing strategy and execution.
• 10% of the sessions focused on B2B marketing.
• 8% of the sessions focused on small businesses.
• 6% of the sessions focused on Social Media, Mobile Marketing, and Rich Media.
• 4% of the sessions focused on e-mail marketing.

Less than a quarter of the sessions focused on pure catalog strategy.

The folks I spoke with, an albeit biased sample of catalog marketers, were generally interested in attributing online orders to catalog marketing, were interested in e-mail marketing (a disconnect with the sessions focusing on e-mail marketing), were interested in the interaction of marketing strategies that help create an order, and were interested in cutting catalog marketing expenses.

Attendees tell me of a disconnect. They are doing the things they've always done. They're mailing the same number of catalogs they've always mailed. But as illustrated in the content of the sessions above, they're required to know three times as much information as they used to have to know. Several folks communicated the stress of this situation to me --- they have sixty hours a week to do their old forty hour a week job plus the other one hundred and twenty hours of work that has been added. And then they have to listen to folks praise this new world as being "multichannel".

Vendors have an opportunity to help overwhelmed marketers manage this quagmire. The quagmire appears to be exhausting some attendees, turning still others somewhat sarcastic about the current trajectory of the industry.

Nordstrom: Buy Online, Pickup In Stores

Multichannel advocates across the globe raise a glass of champagne, in honor of Nordstrom and their new strategy.

I am waiting for my local dentist to offer a "Buy A Root Canal Online, Pickup In Stores" option. Maybe universal health care will bring dentistry into the multichannel fold.

ACCM 2008: Catalog Choice

As best I can tell, Catalog Choice was not in the exhibit hall.

Attendees overwhelmingly shared with me that they were willing to speak with or work with Catalog Choice --- only a few individuals expressed frustration with constant calls from Catalog Choice to accept opt-outs.

There may be folks from Catalog Choice who are in attendance, and I simply haven't run across them. I'd have loved to have seen the DMA have the courage to invite Chuck Teller of Catalog Choice to speak at this conference, allowing their message to be heard along with the message of self-regulation offered prior to the keynote address.

Overwhelmingly, attendees told me they wanted to do "what is right" for their customers.

ACCM 2008: Green Initiatives

We'll probably become tired of the concept of brands "going green" in the near future. Until then, there's tension in the air, as evidenced at the ACCM Conference today. Here's a summary of the competing forces I identified from my conversations.

• Third party opt-out services "imposing their will upon brands" or "representing the wishes of the customer", depending upon whom you survey. Solution = Third Party Opt-Out Service.
  

• Garden-variety employees want to "do what is right". Solution = Mail Fewer Catalogs and Use Eco-Friendly Paper.
  

• Business leaders who want to "do what is right" while "maintaining or growing sales" and not wanting outside forces "imposing their will" upon them. Solution = Use Eco-Friendly Paper and Replace Catalogs (see the vendor bullet point).

• The DMA wants self-regulation. Solution = "DMA IS GREEN" theme, using "DMA Choice" instead of third party opt-out services.
  

• Vendors want to use technology and analytics to "replace" catalogs ... meaning that you take catalogs away from the audience that hates them, giving them instead to customers who like them. Solution = Replace Catalogs and Use Digital Media To Replace Paper.

At the start of a movement, there are many camps, and many solutions. The audience today told me that we're at the start of a movement. It will be fun (and painful) to see how this evolves.

ACCM 2008: On The Ground

Within ninety seconds of entering the Gaylord Palms here in Orlando, I met a half-dozen folks that probably attended this conference in 1993.

This fact is going to be part of a theme I hope to explore over the next two days. How does an industry with deep roots and strong loyalty face adversity?

My goal is to share with you how real people deal with real multichannel problems. You won't hear an overview of keynote speeches, you won't read about glitzy products that promise to increase ROI by 243%. I will try my hardest to illustrate how human beings are dealing with an industry being assaulted by online pureplays, postage increases, co-op colonization, channel shift, declining response, economic woes, increased foreign labor costs, increased delivery costs, and the inclusion of third-party opt-out services to the business model.

The Long Term Impact Of Sluggish Sales In 2008

Many folks are telling me that business in the multichannel direct-to-consumer world is down an aggregate 15% to 25% compared to 2007.

Poor performance manifests itself in the short term, and in the long term. Worse, it manifests itself in a harsh manner across brands/channels in Retention Mode.

Take a look at the table below:

Long-Term Impact Of Bad Performance In 2008
	Retention	Retention	Acquisition	Acquisition
	Mode	Mode	Mode	Mode
	No Cuts	And Cuts	No Cuts	And Cuts
2008	-20.2%	-23.9%	-19.4%	-23.3%
2009	-9.6%	-16.8%	-6.6%	-7.4%
2010	-7.0%	-11.9%	-2.8%	-3.5%
2011	-4.3%	-8.7%	-1.9%	-1.9%
2012	-2.8%	-6.1%	-1.1%	-1.1%

A business in retention mode (annual repurchase rate > 60%) feels the pain much longer than a business in acquisition mode (annual repurchase rate < 40%).

In the table above, we compare what happens when 2008 is down about 20% to 2007, but the business immediately rebounds to normal levels for 2009 - 2012.

The retention mode business is down almost ten percent in 2009 because of a bad 2008, down seven percent in 2010 because of a bad 2008. And then factor in our natural reaction to cut marketing expense --- which accelerates the downturn in 2009 - 2012. This is where many of our retention mode businesses are heading, especially those trimming marketing expense to "get through 2008".

Notice that the acquisition mode business is not hurt nearly as bad. Because this business depends upon new customers, it rebounds quickly.

In an economic downturn, knowing the mode your business is in (Retention, Hybrid, Acquisition) means everything to making marketing expenditure decisions. Run the metrics, and understand what current day decisions mean to the long-term health of your business.

For The Price Of Two Lattes

You might be interested to learn that sixty percent (60%) of loyal readers purchasing Hillstrom's Multichannel Secrets chose the e-book option.

The e-book version is significantly discounted ... for just $7.95, you obtain fifty-nine secrets every CEO can use to improve profitability. The paperback version of the book sells for $14.95 (and in case you were wondering, I make less money on the e-book version of Hillstrom's Multichannel Secrets).

Honestly, folks, what kind of world do we live in where fifty-nine multichannel secrets that help multichannel CEOs and Executives improve profitability cost the same amount as two lattes from Starbucks?

Folks, you probably shouldn't use your corporate account to purchase a latte for you and the account representative from Google that is visiting your office today. But using your corporate account to purchase Hillstrom's Multichannel Secrets makes business sense!

At $7.95 for the e-book version, your company probably needs to increase net sales by $35 or less to make up for the cost of the e-book (or just $75 to make up for the cost of a paperback book and shipping).

Even better, you get the e-book immediately ... you don't have to wait a week for printing/shipping. You pay less, and you get your product now! Now, you won't get the cover art or back cover information with the e-book version, but you do get all of the content.

So pull out your corporate credit card, and give the book a try!!

Multichannel Skills

Today I am hosting a rummage sale.

A family stopped by, looked at various items, discussed the items in their native language, then spoke to me in English.

From a negotiating standpoint, they had an inherent advantage.

Which brings us to the art known as multichannel marketing.

Why do so many of us elect to focus on one aspect of multichannel marketing, without being well-versed in other areas? Web Analytics, E-Mail Marketing, Business Intelligence, Data Mining, Catalog Marketing, Paid Search, Affiliate Marketing, Portal Marketing, Newspaper Advertising, Radio Advertising, Television Advertising, Social Media --- we pick our niche, and try our hardest to become an expert in that niche.

Granted, there is nothing wrong with doing a deep dive in one particular area of marketing. For the generalist, knowing 50% about each of a dozen different crafts is worth more than knowing 100% of one niche.

Secret #52: Best Practices Have Their Place. So Does Merchandising And Marketing Innovation

At a recent conference, the presenter asked how many attendees displayed a shopping cart at the upper right hand portion of the screen, a cart that displayed how many items were in the cart? Maybe five out of fifty attendees raised their hands.

The presenter blasted the other forty-five attendees for not following "best practices", then suggested that the attendees would "soon be dead" if they didn't follow this "best practice".

The e-mail marketing, online marketing, and web analytics communities are sometimes obsessed with best practices. Maybe we're obsessed because so many of us are ignorant of simple changes that could improve performance.

We need to be mindful of best practices. But we need to also get away from best practices. Take a look at the e-mail marketing campaigns you receive. Take a look at the websites you visit. They're all practically the same! We're just a bunch of marketers basking in our own self-perceived best practice marketing brilliance --- all doing the exact same thing to a thoroughly bored customer.

Marketing and merchandising innovation are what matter. Recall my Nordstrom experience, where we killed a catalog in 2005, in stark contrast to the best practices of the punditocracy who demand a seamless multichannel experience featuring a viable selling catalog? Heck, I believed the punditocracy, strenuously demanding the seamless multichannel experience that included a viable catalog marketing program. Yet somehow, over eighteen months, we increased our sales and profit in the direct-to-consumer channel by doing the exact opposite of what pundits suggested we do.

Would Apple be successful if they followed best practices?

Starbucks broke every retail real estate best practice by over-saturating the market at levels never seen before.

Zappos broke every shipping and handling best practice by offering free shipping and free returns and by getting merchandise to you in a day (by the way, if you live in Germany, Otto Versand will deliver product to your home faster than Zappos delivers product to your home).

Best practices have their place, increasing sales and profit today. Merchandising and marketing innovation drive sales and profit increases tomorrow.

Hillstrom's Multichannel Secrets: Fifty-Nine Facts Every CEO Can Use To Improve Profitability!

Shoulds

What is your response when somebody tells you what you "should" do?

"You should have that item available in all channels at the same price."

"You should allow your customers to buy online, and pickup the item in stores."

"You should let the customer determine how often you advertise to the customer (this one is fascinating, because the "should" changes dramatically if you should be accountable for driving sales and profit increases!)".

"Your should integrate all of your advertising strategies under a cohesive multichannel umbrella."

"You should eat four servings of vegetables and fruit each day, and you should walk at least 10,000 steps each day."

"Shoulds" seem to have two purposes in our multichannel world.

• To maintain the status quo.
• To alert one of new technologies or methodologies.
  

Our reaction to "shoulds" is different in each instance.

Shoulds that maintain the status quo are frequently annoying and feckless.

Shoulds that alert us to new technologies create fear. Go tell a traditional marketer that they "should" embrace social media sometime. Brace yourself for the response.

During the past two weeks, I've been bombarded by glossy direct mail and well-written e-mail letters, encouraging me to participate in a veritable plethora of "shoulds" at next week's ACCM conference. You'd be amazed how many people think you should stop by a booth to enter a drawing for a free iPod Nano.

It seems like the secret to shoulds is to identify who benefits from the "should", to identify the motivation of the should. Shoulds consume time. There are an infinite number of shoulds to adhere to. There's a limited amount of time to shoe-horn in a bunch of shoulds.

Secret #35: Information Ages Differently

Here's a frequent question: "Why won't my retail customer purchase from my catalog or website?"

We've been taught all this multichannel stuff without adequate validation of actual customer behavior. A survey of 1,149 likely multichannel shoppers doesn't do true multichannel customer behavior justice.

The truth is that customers behave very differently across channels.

Customers who purchase from a catalog have a long memory. This is validated by the fact that many catalogers can mail customers who last purchased five or six years ago, and make money doing so.

Customers who purchase from a retail store have a short memory. Quick, tell me every store you shopped in when you visited the mall in January 2007? Or tell me every website you visited on March 14, 2008?

Multichannel marketing is an art form. It isn't all about slapping up an inventory system that links channels, followed by a coordinated multichannel advertising campaign that includes catalogs, e-mails, and display ads all connected by an integrated message.

Knowing that retail data ages quickly, knowing that online data ages almost as fast, and knowing that catalog data ages slowly causes us to make very different marketing decisions. Or at least is should cause us to make very different marketing decisions! We market to recent retail customers, yet we're willing to market to long-lapsed catalog customers, because the return on investment is comparable. And we use only the advertising channels that maximize this opportunity, targeted to the audience most likely to respond to them.


Hillstrom's Multichannel Secrets: Fifty-Nine Facts Every CEO Can Use To Improve Profitability.

Steve & Barry Retail Stores

No catalogs, no website, growing in an era of retail contraction. Steve & Barry, with just one channel, defies multichannel logic.

Multichannel advocates, do you think this brand is "missing an opportunity", or does having just one channel give it a unique competitive advantage, give it a reason for being, give it a focus that a multichannel brand simply cannot have?

Secret #47: Lists Are Dying

The foundation of Direct Marketing is the list. And unfortunately, the list is dying.

Back in the day, we had very limited information about customers. Given that we knew almost nothing about customer behavior, the list meant everything. The fact that the customer purchased from Bloomingdales By Mail within the past three months meant a lot.

Of course, co-op statisticians changed everything, proving that cryptic equations and "affinity models" identified more potential customers than the Bloomingdales By Mail 0-3 Month $100+ Womens Select.

E-Mail lists represented a transitional stage in the list death process.

Google severely wounded the list. Would you rather rent 0-3 Month $100+ Womens customers from Bloomingdales, or would you rather have access to customers who are looking for dresses RIGHT NOW?!

The only problem with Google is the psuedo-anonymity of the process. The list allows you to know something tangible about the customer --- name, address, e-mail address. Google lets you know that the customer is searching for a dress right now.

So where does this leave us?

Somewhere between social media pap and lists are communities.

A community represents a group of folks with a common interest.

In the data mining world, this might be KDNuggets. In the old days, a marketer would rent a list of KDNuggets users, sending a glossy postcard to the user with the text "DO YOU WANT TO INCREASE SALES BY 294%? ASK HOW!" proudly displayed across the front of the postcard.

Today, the marketer might purchase display ads on the homepage. In the future, the marketer will interact with the community. The marketer might give free software to members of the community, no strings attached. The marketer might offer advice to folks who are dealing with challenging situations.

In kind, the community supports the marketer.

List based approaches to marketing have yielded prominence to algorithmic approaches to marketing. The community approach to marketing re-introduces the human element, an element that is sorely missing in a co-op and Google driven world.


Hillstrom's Multichannel Secrets: 59 Facts That Every CEO Can Use To Improve Profitability!

More About Secret #36: Channel Compromise

Take the example of Bloomingdales killing their direct-to-consumer catalog from a few days ago.

Cataloging and retailing have a love-hate relationship. If your definition of cataloging is "advertising", then the relationship is love. You merchandise a book in a brand-right manner, you inspire customers, you treat the catalog as a cost center, and you drive folks into a store.

But if you want a traditional catalog business, one that drives customers to a website or to the phone to place orders, one that acquires new customers, and you have a physical retail presence, you have a hate relationship!

Maximizing the productivity of the catalog conflicts with the premise of inspiring a customer to visit a store. You want the customer to trust that the size eight dress will fit when it arrives by mail in four days? You better write copy that describes it well, and have photography that gives the customer confidence in what she's buying --- she doesn't want to waste her time returning the item!!

But the very act of copy and photography stands in contrast to the romance required to get a customer to get in her 20mpg car and drive an hour to the nearest store --- her trip might cost $24 in gas alone!

So you have channel compromise. If you walk a fine line between selling via phone and selling in a store, neither channel benefits (which means, by the way, that the customer doesn't benefit).

In the retail world, this leads to killing the catalog --- catalogs drive a small fraction of the sales of a retail store. The catalog becomes a cost center. And there are a lot of forces that want the those catalog dollars in their cost center --- online marketers first and foremost!

However, the next channel to be compromised is e-commerce. More often than not, the website is in equilibrium or transfer with retail (meaning website customers like to shop in the store), while the store is in isolation with the website (meaning store customers don't like to shop online).

With the catalog gone, irresistible forces drive the website into an aspirational brand marketing vehicle. This shift in focus brings a different customer to the website, compromising the e-commerce channel (and by the way, e-commerce is a very different channel than your website is --- more on that some other time). In time, you'll have an entertainment and information-based website that supports a store. Sure, e-commerce will still exist, but it won't be optimal.

Channel compromise is everywhere. All too often, channel compromise results in a sub-optimal level of sales and profit. Our job as leaders is to decide upon a primary channel that must be optimized, or to allow each channel to thrive on its own merits. Any compromise in-between these options results in compromised sales and profit. Or at least that's what the data I analyze tells me!

Hillstrom's Multichannel Secrets ... Buy The Book!

Secret #36: Channel Compromise Reduces Total Profitability

From Hillstrom's Multichannel Secrets, here's Secret #36:

• Channel Compromise Reduces Total Profitability

Assume you are going to go to lunch with three of your co-workers. Thomas wants to enjoy an all-you-can-eat salad bar. Betty wants a nice, sit-down meal at a local bistro. Marge likes the deli down the street.

You decide to compromise. After listening to the opinion of the group, you go to an Italian restaurant, because everybody likes Italian.

Now it is quite possible that you'll have a pleasant lunch. It is possible that everybody enjoys their meal.

But unless the combined interaction between the four lunch attendees is highly stimulating, the overall meal experience will not be as good for each individual.

In no way am I saying you shouldn't try integrated advertising campaigns. The end result of these integrated campaigns and channels should be increased customer retention, increased customer acquisition, increased frequency, increased spend per order, and increased profit, right? If you're not accomplishing this, go back to maximizing each channel while continuing to experiment.

In 2008, more often than not, channel compromise reduces total profitability. Someday, this fact might change.

Buy The Book!

It's Here!! Hillstrom's Multichannel Secrets

It took longer than expected. Now, "Hillstrom's Multichannel Secrets" is finally available!!

This handbook features "Fifty-Nine Facts Every CEO Can Use To Improve Profitability".

You won't find any fancy charts, beautiful images, or complex mathematics in this book. Instead, you will discover secrets that multichannel marketers often know, but seldom talk about publicly.

The book is geared toward the multichannel CEO or executive, though all multichannel leaders and employees should find the content valuable. Our industry has been way too secretive when it comes to understanding true multichannel issues. This handbook seeks to break down some of the glass walls that separate leaders from information.

I am pleased to offer this handbook via Lulu, a self-publishing, print-on-demand service that is perfect for subjects that may not fill an 80,000 word, 300 page book to an important but less-than-mass audience.

The book costs $14.95 (a download version is just $7.95), and can be purchased by clicking on the button below (or via this link):



At next week's ACCM conference, I will gladly give a limited number of free books to folks who wants to chat about Multichannel Forensics or challenges facing the multichannel/catalog industry. Send me an e-mail to schedule some time on Tuesday, May 20 or Wednesday morning, May 21.

This week, I will share some additional facts about a handful of the secrets outlined in the book. Stay tuned!

Bloomingdales By Mail Catalog To Be Discontinued

Thanks to DMNews for the announcement about the end of the Bloomingdales By Mail catalog.

The pundits have been telling you for almost a decade that you must mail these things to be a true multichannel brand. Now, leadership elects to discontinue paper advertising to be "brand-right" and ecologically friendly, mirroring a decision made by Nordstrom in 2005 (a decision also derided by pundits).

All that money spent mailing catalogs becomes an "expense" that can be reallocated to website initiatives. Will the initiatives increase sales?

If you are a true multichannel retail brand (stores, website, phone), it isn't hard to see where this "multichannel thing" is heading. By the way, you'll make very different strategic decisions (keep a catalog vs. discontinue a catalog) using matchback analytics vs. using mail/holdout methodology.