Kevin Hillstrom: MineThatData

This Week In Business: Cyber Monday

2009-11-10T20:15:00.001-08:00

In the movie "The Matrix", a "bluepill" was a person who was still connected to the Matrix. A "redpill" was a person who had been freed.

As you already know, "Cyber Monday" is just nineteen days away. One might think of Cyber Monday as falling into the bluepill category.

Over in reality, the redpill marketer knows that traffic is higher on the Monday following Thanksgiving ... in fact, traffic is always higher on Monday than on Sunday. The redpill marketer, like every other day of the year, is trying to link customer needs with products that solve customer needs.

The bluepill marketer is connected to the Matrix. This is a blissful place, a never-ending maze of marketing enlightenment and discovery.

Offline marketing must be in-home two weeks prior to Cyber Monday, because you cannot be in-home the week before Thanksgiving, that's death. Offline marketing must be fully integrated with all digital Cyber Monday campaigns, and fortunately, there's no shortage of agencies who will help integrate marketing messages for you, messages like "Take 10% off and get free shipping, this Cyber Monday only!"

Messages need to be incorporated across all channels, because you cannot have inconsistent messaging, that would represent a bad customer experience. So the e-mail campaign you receive at midnight on Cyber Monday has a header saying "Take 10% off and get free shipping on Cyber Monday only!" Maybe there's even a few doorbuster items featured in the e-mail campaign, though you cannot really bust down a door online, but if you are a retailer, you want to use the term 'doorbuster' to integrate your online campaigns with your Black Friday 'doorbuster' retail campaign. Never mind that last year, a Wal-Mart worker died during a doorbuster promotion when the door actually busted down and customers trampled the employee, that was an unfortunate incident unrelated to the marketing phrase 'doorbuster', a phrase proven to help generate incremental sales.

The doorbuster items are featured via paid search with "Take 10% off and get free shipping on Cyber Monday only" copy that leads the customer to a landing page. Now this landing page had better be well-merchandised, because we don't want to lose the customer, no, we need the customer to migrate through the purchase funnel, sliding faster and faster toward that fabled hallmark of online marketing success ... the 'conversion'!

Should the customer mistakenly abandon a shopping cart, well, then we've all got a problem. Fortunately, the bluepills have a solution for this, and it is called a 'trigger-based e-mail marketing campaign'. Here, the customer is reminded that she left an item in her virtual shopping cart, but this time, she is offered a different subject line ... "Take 20% off and get free shipping on Cyber Monday only".

In a world of fully integrated multichannel marketing, the customer quickly races out to Twitter (on her mobile phone, of course), to see what other Cyber Monday shoppers are saying. Here, the customer finds a special promotion, only for Twitter followers ... "Take 25% off and get free shipping on Cyber Monday only".

It is this promotion that closes the deal! The customer, exhausted from her Cyber Monday prowl through Cyberspace, finally checks out, using a promo code from Twitter. Her $125 purchase with $14.95 shipping and handling only costs her $93.75.

Minutes later, nearly in real time, the Web Analytics professional is busy allocating this order to the marketing channels that drove the purchase. No actual tests were executed here, because you simply cannot afford to give away sales on Cyber Monday. Instead, a set of percentages based on established best practices will be used to allocate the order across marketing channels. No simplistic last-click allocation methodology will be allowed on Cyber Monday!!

Offline Direct Marketing is credited with 15% of the order.
The Midnight E-Mail marketing campaign is credited with 25% of the order.
The Paid Search ad is credited with 15% of the order.
The Shopping Cart Abandonment trigger-based e-mail marketing message is credited with 15% of the order.
The Promo Code from Twitter is credited with 15% of the order.
The Mobile Marketing department is credited with 15% of the order, too!

Internal fighting ensues, as marketing managers responsible for Twitter, triggered e-mail marketing, paid search, campaign e-mail marketing, mobile marketing, and offline direct marketing all argue that they deserve a greater share of this order. But we're measuring things in real-time, the company must know how every Cyber Monday order was generated no later than Tuesday at 7:00am when the information appears as a KPI on the corporate dashboard, so this allocation strategy will dictate the parsing of orders for now. Thank goodness that a new web analytics platform was installed, one that integrates offline and online data with budgeting decisions. But it is too bad that the offline data cannot be downloaded into the system for a week. The Web Analytics team will issue new reporting two weeks later, adjusting the allocation algorithm for the inclusion of offline orders. Hopefully somebody will pay attention to the adjusted results.

At midnight, Cyber Monday ends. Real-time reporting illustrates that this was the best Cyber Monday ever, with sales exceeding 2008 levels by 9%, closely mirroring predictions from Woodside Research. By 3:00am, it will be revealed that multichannel marketing campaigns were the most effective at driving Cyber Monday sales, and that social media discounts and promotions accounted for up to 30% of Cyber Monday sales, proving once again the importance of having an integrated marketing message across all channels, supported by real-time analytics that integrate data across all touchpoints.

The day after Cyber Monday is a day of satisfaction, a day to crunch numbers, a day to reflect. On Wednesday, the process begins anew, as peak shopping days before the Holiday season are just around the corner. It is time for more marketing, more campaigns, more measurement, more real-time analysis, more KPIs and dashboards, more promotions, more discounts, more landing page optimization, maybe even a few A/B tests tossed in for good measure.

For the bluepill, it is a non-stop rush, pure marketing bliss, resulting in $93.75 of revenue per customer. Sales were up 49% vs. not having any Cyber Monday support, resulting in $139.95 of volume.

For the redpill, Cyber Monday was a day when a customer spent $125, plus $14.95 shipping and handling, for a total of $139.95. Finance will tally the results at the end of the month.

Your Digital Marketing Plan

2009-11-09T20:20:00.000-08:00

Give this article a read. It's not your industry, and I'm not promising any of this will work for your business, but the article gives ample opportunities to think about online marketing through a social lens. Check out the homepage design these folks put up on a whiteboard. Interesting, isn't it?

And notice how they are asking fans to e-mail ten friends, tracking results with CRM software. Are any of us, supposedly sophisticated database marketers, doing this? Notice their CRM-based tracking via Twitter as well.

How do these lessons apply to your business? What is stopping you from trying these strategies? Read this, not like a 53 year old direct marketing Director or 39 year old online marketing Executive, but like an outsider might read it.

Firing Customers

2009-11-09T20:15:00.001-08:00

E-mail me if you want a copy of the OMS spreadsheet to follow along with on our examples. Click here to buy the book on Amazon, or click here to purchase the book for your Kindle.

The concept of firing customers is a popular one. We read a lot of content that tells us to focus on the 20% of our customer base, the part of the customer base that generates most of the demand.

I'm not here to tell you that the strategy is right or wrong. I'm here to give you the tools to understand what it means to fire customers.

In our OMS spreadsheet, we grade customers with a grade of "A", "B", "C", "D", and "F". So today, we're going to attempt an experiment.

Open your spreadsheet. Notice the five year sales trajectory of this business.

Year 1 = $75.9 million.
Year 2 = $70.4 million.
Year 3 = $66.7 million.
Year 4 = $64.4 million.
Year 5 = $62.9 million.

Clearly, this business is in free fall. So, let's do something odd. Let's fire every customer with a grade of "D" or "F". These customers cannot purchase again, ever. We'll literally block them from buying from us. Any customer that falls into a grade of "D" or "F", during the next five years, is prevented from buying again in our simulation.

Enter the value "0.00" into cells C245 - C340. This means that customers with a grade of "D" or "F" cannot buy again. We'll keep acquiring new customers. Take a look at the results.

Year 1 = $73.4 million.
Year 2 = $66.1 million.
Year 3 = $60.4 million.
Year 4 = $56.1 million.
Year 5 = $52.9 million.

In the first year, firing customers has almost no impact on sales ... sales decrease from $75.9 million to $73.4 million.

In the fifth year of the simulation, firing customers has a significant impact on sales ... sales decrease from $62.9 million to $52.9 million.

Your job is to determine if this type of decision increases profit, or decreases profit. My job is to show you that there is a cumulative impact that results from the decisions we make today. So many of us in the Web Analytics community and Online Marketing community look to optimize conversion rate, seeking to optimize the performance of the business today.

Hint: The Online Marketing world is "inefficient". When everybody is trying to optimize short-term results, you gain a competitive advantage by optimizing long-term performance. Use the OMS framework to do this!!

Dear Catalog CEOs: Our Multichannel Mess

2009-11-08T20:15:00.003-08:00

Dear Catalog CEOs:

Want to have some fun? Go back to 2002, and read this roundtable interview with numerous catalog CEOs, facilitated by Catalog Age magazine.

Remember Catalog Age? A publication dedicated to catalog marketers? Well, they changed. The rebranded themselves as Multichannel Merchant, and when the world changed again, a portion of their empire evolved into The Big Fat Marketing Blog. What comes after that? But they did change with the times.

After reading the article from 2002, I don't find thinking that is significantly different than the thinking that pervades our industry in 2009. We grumble about postage. We say it is getting harder to prospect. We say that online marketers are raising the customer service expectation bar. We say that banner advertising doesn't work.

For many in the catalog industry, the phrase "multichannel" means nothing more than a bunch of channels and tactics that are there to support the continued production of catalogs.

Our industry invented the "matchback", a methodology that allows us to over-inflate catalog importance and deflate the credit we give to all other channels. At a time when all other marketers were increasing their investment in online marketing, we were allocating our investment back to the old stalwart, the catalog.

At a time when all other marketers were figuring out how to optimize landing pages, we were figuring out how to optimize printed pages.

At a time when all other marketers were using java script to dynamically generate online content based on consumer preferences, we were drinking java while dynamically figuring out how many pages had to be sent to cause an online order to happen.

At a time when all other marketers were optimizing their search marketing activities, we were searching for the best co-op to find names to send our marketing activities to.

At a time when all other marketers were learning all of the ways that customers integrated themselves with websites and social media, we integrated our websites with our retail and catalog channels, largely because our vendor partners encouraged us to do so.

We took the road less traveled by. And that has made all of the difference.

Last week, a person commenting on a blog suggested that I don't offer solutions, I just point out the obvious.

I feel like I've offered more solutions on this blog, for free, than any person in the catalog industry. Go back over the past 3-4 years and read the content, then compare it with the content from the vendors in the catalog industry. I'm trying to communicate how we can stay in business. It seems that unless the solution includes mailing a catalog, the industry doesn't perceive the solution as being viable.

Here is a laundry list of tactics, strategies, and potential solutions. Why not give a few of these a try?

Immediately test reduced frequency to best customers, and measure the incremental profit you achieve when reducing contact frequency.
Immediately test reduced pages per contact to all customers, and measure the incremental profit you achieve when reducing pages per contact.
Immediately calculate the "organic percentage", the percentage of demand that you will generate if you stop all catalog marketing. Calculate the profitability of your business sans catalog marketing.
Do not mail any catalogs next July. Instead, take your catalog investment, and allocate it across all online marketing channels. Carefully measure how customer behavior changes next July.
Execute mail and holdout tests in EVERY catalog, across EVERY customer segment. DO THIS NOW! Have your matchback vendor match online orders to the control group --- this quantifies how much damage your matchback vendor has done to your business by over-stating your catalog results. I cannot stress how important this is.
Set up a holdout group for at least six months, if not one year, and do not mail catalogs to this holdout group during this time. Within this audience, test halving your e-mail contact strategy, and test doubling your e-mail contact strategy.
Invest as much time on your online landing pages as you invest in catalog landing pages. Put your online landing pages up on the hallway walls of your office, just like you do with your catalog spreads, and measure the resultant profitability of every single action a customer can take on your landing pages.
In every meeting you have, you must spend equal time talking about catalogs and about your website. Yes, EQUAL TIME!
In every catalog marketing meeting you have, invite your online marketing experts in, and have them critique your catalog marketing activities. You've spent ten years having your catalog marketing experts integrate your website into your catalog business, now try doing the opposite, and see what happens.
Test your catalog creative, to find the style of creative that is most effective at driving customers online.
Test offering only best selling products in catalogs to prospects.
Test offering only new products in catalogs to existing customers.
Immediately change strategy and diversify your marketing activities if 50% or more of your online business is sourced from catalog marketing.
Use Multichannel Forensics to quantify if customers are likely to continue shifting online, or have finished their channel shift.
Optimize your catalog business for rural, 55+ year old customers who shop via the telephone.
Optimize your online business for EVERYBODY else.
Have your team create a marketing plan for a situation where you are not allowed to rent or exchange name and address without prior customer permission. More than anything else, this exercise will prepare you for the future.
Have your team create a marketing plan for a situation where every single catalog cost 50% more than it costs today. This exercise will prepare you for the future.
Develop a five year sales plan by advertising channel, if you don't already have one in place. It is irresponsible to not be prepared for the future.
Visit a non-competitive online e-commerce brand, and facilitate four days of knowledge exchange. On Day 1, the e-commerce brand tells you how they acquire customers. On Day 2, you explain to them how you acquire customers. On Day 3, the e-commerce brand tells you how they optimize online conversion. On Day 4, you tell them how you optimize offline conversion. Tell me you aren't going to learn something from this exercise.
Stop laying off your call center staff, and instead, unleash a fraction of these individuals in the social media ecosystem, sort of like how Zappos does.
Stop treating online customers from online advertising sources like catalog customers. Enjoy making additional profit after employing this strategy.
Spend more time optimizing fulfillment rates, return rates, and distribution center expenses than you spend managing social media.
Ask every one of your contact center and distribution center employees why they would shop from your catalog if they can find a similar product at the same price via an online brand that offers free shipping. Carefully record their responses. Change your strategy, based on their responses.
Spend more time with your search vendor than you spend with your co-op vendor.
Spend more time with your e-mail vendor than you spend with your co-op vendor.

I could go on and on, forever.

Maybe the economy will improve in 2010. Maybe customers will re-embrace catalog marketing. And maybe the old business model will thrive once again.

If those things don't happen, isn't it time to pull ourselves out of the multichannel view of the world that was so popular in 2002? If the multichannel view of the world yielded success, would so many companies be struggling, struggling long before the economy imploded or before postage increased?

As always, I am here to help you!

Thanks,
Kevin

Digital Download Now Available: Online Marketing Simulations

2009-11-08T20:10:00.000-08:00

Oh sure, I can offer merchandise across multiple channels!

You can buy the book on Amazon.com, $19.95 --- click here.

You can buy the Kindle version via Amazon, $4.99 --- click here.

And now, you can purchase a digital download of the new book for $4.99 via Lulu.com --- click here.

If you are a "best customer", you'll purchase this book in multiple channels, right? I mean, multichannel customers are the best customers, so that means you'll probably purchase multiple copies in multiple channels!

Gliebers Dresses: Bonuses

2009-11-05T20:15:00.001-08:00

Welcome to the weekly Gliebers Dresses Executive Meeting:

Glenn Glieber (Owner): "After watching Brett Favre mulch his former team, I started thinking about Sarah Wheldon. It's really the same situation, in so many ways."

Meredith Thompson (Chief Merchandising Officer): "Kevin, is that you?"

Kevin: "Yup, it's me."

Lois Gladstone (Chief Financial Officer): "I'd like to take time today to talk about bonuses."

Roger Morgan (Chief Operations Officer): "I love bonuses! Bonuses are how I pay for just about all of my major home improvements, and they are used whenever I need a new car."

Lois Gladstone: "Well, Roger, I've got some bad news for you."

Roger Morgan: "Oh no."

Lois Gladstone: "We have less than two months left in the calendar year. As you already know, we are eligible to earn up to 60% of our salary via an annual bonus payout. Our bonus is broken down into three components. 35% of the bonus is based on achieving total net sales goals. 50% of the bonus is based on achieving total profit goals. 15% of the bonus is based on individual objectives, based on your area of expertise. "

Pepper Morgan (Chief Marketing Officer): "Here it comes ..."

Lois Gladstone: "Based on year-end projections, here is where we stand. Year-end net sales are forecast to be $45,000,000. In our bonus structure, this will earn us a grade of "D", so we get 25% of 35%, or 9% of our salary. Year-end profit is forecast to be $0, break-even. In our bonus structure, this also earns us a grade of "D", so we get 25% of 50%, or 13%. Assuming that every Executive member earns a grade of "C" on individual performance, we tack on another 50% of 20%, or 10%. This means that the average bonus for this team will be (9% + 13% + 10%) * 60% = 19%.

Roger Morgan: "After taxes, I won't even be able to buy a Hyundai for 19% of my salary!"

Meredith Thompson: "I'm worried about our rank-and-file staff. Their bonus target is just 15%. On average, they will get, what, 5%? If they are earning an average of $50,000 a year, that's a paltry $2,500.

Lois Gladstone: "But here's the problem. That paltry $2,500, which also goes to contact center staff who work 3/4 of the year, really adds up. Add in our bonuses, add in bonuses for our Directors and Managers who are at 30% and 20% bonus targets respectively, and you're looking at a million dollars or more that we pay out in bonuses, roughly 2% of EBIT. For Gleibers Dresses, bonuses are going to be the difference between being a break-even company, and being a company that is profitable in the face of The Great Recession."

Meredith Thompson: "What are you thinking about doing, Lois?"

Lois Gladstone: "I'm thinking of taking away bonuses from any individual who has not achieved the level of 'Director' or 'Vice President'. It just makes good financial sense to do this, and to do this now, while the economy is just plain awful. Employees are just happy to keep their job right now."

Pepper Morgan: "Aren't bonuses supposed to inspire us to perform well? Without the incentive, who's to say we would have even achieved profitability?"

Roger Morgan: "I agree with Pepper. And for crying out loud, we're like the only company who pays a bonus to call center and distribution center staff. It is our competitive advantage. It is the way we get to hire the best employees in all of New England. It's like free marketing for us."

Glenn Glieber: "I love free marketing!"

Meredith Thompson: "How can you even think about taking something away from our people? If we did this, it would be devastating to our employees."

Lois Gladstone: "If we did this, we'd protect the profitability of our company. The only way we stay in business is if we generate profit. And right now, what we're doing as leaders are not generating enough profit to allow us to continue running our business 'as-is'. If we had magical merchandising or marketing ideas that were proving to yield huge levels of profit, I'd feel differently."

Meredith Thompson: "But why take money away from the folks who need it most?"

Lois Gladstone: "Well, of course they need it the most. But our compensation package is a bit too generous. We need to scale it back to levels that are competitive with our competitors. Anna Carter sure doesn't pay a sales rep on the phone a bonus, I can tell you that."

Meredith Thompson: "Kevin, help!"

Kevin: "I know you are planning on freezing salaries this year, and you've already communicated that to your employees. Couldn't you give each employee a 3% salary increase at the time you take away the bonus, so that the employee doesn't feel completely ripped off?"

Lois Gladstone: "Absolutely not. Salary increases are like compound interest. Next year, when you give the employee a 3% increase, it is actually 3% on top of 3%, or a two-year increase of 6.1%. That's why bonuses are such a good idea, as a compensation philosophy. You take away that compounding of interest, which, in the long-term, helps a business be a lot more profitable."

Meredith Thompson: "But you're also taking away the bonus, Lois! The employee just gets clobbered."

Lois Gladstone: "Look, I didn't bring on the economic crisis, did I? But it is my job to respond to the crisis in a way that protects all of us. Do we want for this business to be profitable? If we do, then we do one of two things. We can increase merchandise productivity, something we're not good at. Or we can reduce expenses. Salaries and bonuses are two components of the expense structure. Until we figure out how to grow our business via merchandise and marketing productivity, I am taking away annual bonuses from hourly staff, analysts, and manager staff. I am freezing wage increases for all employees, including us sitting here at this table. The combined impact of these decisions is $1.2 million that goes straight to the bottom line, making Gleibers Dresses profitable once again."

Kevin: "So the question is, what are you going to do with the money at the end of 2010? Pepper showed me reporting that suggests if we invested the money in various paid search activities, we could generate profit within the calendar year. Wouldn't that be a good thing? If you are taking something away from employees, can't you at least demonstrate to them that you are going to make an investment that protects their jobs, long-term?"

Lois Gladstone: "It's my job to protect shareholder value, and in this case, Glenn is the shareholder. At the end of 2010, we'd pay our fair share of federal taxes, and Glenn would pocket the savings as personal profit, being the owner of this business."

Meredith Thompson: "By doing that, it means that profit would significantly increase, and that means we'd all get paid bigger bonuses, right? And Lois, a portion of your bonus is based on personal performance, so in essence, you'll double-dip on your bonus. That's lovely! In essence, we're now taking money away from our own employees, so that we can pay ourselves more. That's just sheer greed."

Lois Gladstone: "None of this would be necessary if merchandise productivity were better. And we need to keep our leadership bonuses, in order for the compensation structure to remain competitive. Otherwise, our Executives will leave. We want to keep the best Executive talent, right?"

Meredith Thompson: "Not true. Not true. We could break-even again next year. We are making a conscious choice to take money away from employees, so that the company is more profitable, so that we can earn bigger bonuses and so that Glenn can take home two-thirds of a million dollars."

Lois Gladstone: "As owner, Glenn can do what he wants to do. This is his business, he owns it, the employees do not own it. It is our job to make sure Glenn is paid as much as is humanly possible. That's capitalism. I am only doing my job. And if we want to avoid problems like this in the future, we better get a lot more efficient with other expenses, or start putting merchandise and marketing out there that customers crave. Roger, Pepper, if you disagree, make sure your voice is heard, but regardless, the train is leaving the station."

Pepper Morgan: "I'd rather invest the money in marketing, so that our customers pay us back, so that we earn more profit, so that all employees can earn salary increases and have their bonuses re-instated."

Roger Morgan: "Lois, are you going to come to the contact center and distribution center and communicate this message? People are going to be livid. They should hear the message from the person responsible for the change in compensation strategy."

Lois Gladstone: "Each department head will communicate the strategy to their employees, just like we've always done. We'll have human resources draw up 'talking points', illustrating why we need to make this decision, pointing out that this is better than another 20% headcount reduction. In this economy, with 10% unemployment, employees will be happy to simply keep their job, right?"

Roger Morgan: "This is how the middle class gets wiped out. When business is good, they borrow money out of their homes at 5% interest. When business is bad, they lose their job or they lose their bonus or their salaries are frozen. No matter what, the employee keeps getting further and further behind."

Lois Gladstone: "Or maybe the employee needs to figure out how to make this company more money. Maybe the employee needs to take personal accountability. Maybe the employee shouldn't lounge around on a 90 minute lunch break. Maybe the employee should try to make Gliebers Dresses more money instead of tweeting about salary freezes to the social media folks. The only reason we come to work each and every day is to make this enterprise as profitable as possible. That's it. All of those niceties and mission statement quotes and dedication to customer service, that's all secondary to the main point of capitalism, that being to earn as much money as you possibly can. The culture of this place needs to change. People need to be accountable to profit, and if they generate profit, the business will take care of them. Listen, folks, if your people don't like this, they're free to leave. They should go find another job, have at it! Prior to me arriving last year, this place was run like a family. It needs to be run like a business if it is going to survive."

Roger Morgan: "Glenn, are these your thoughts channeled through Lois, or what?"

Glenn Glieber: "I think we've lost focus on profit, to some extent. We spent this year talking about marketing and merchandising strategies. None of what we've talked about is working. We've cut marketing expenses to the bone. I'm not sure I know what else to do in order to make us profitable. I don't see any other way out. I lost 40% of my 401k last fall. I invested all of my profit either back into the business, or into my 401k. The economy cost me 40% of my career. Think about that. I've run this business profitably for 39 of 42 years, and just like that, 40% of my 401k was gone, the same thing as losing 16 years of effort, 5,800 days of toil and effort vaporized just like that. I devoted my life to this business. I deserve a better end to the story. I'm tired. I'm not sure I'm going to keep coming in to work in 2011 and beyond. So, yes, if I want to benefit from the profit of this business, I am entitled to channel some of my wishes through Lois. And it is her job to find a way for my business to be more profitable. I'd rather freeze salaries and eliminate bonuses than lay off another 20% of the workforce. And that's all I have to say about that topic. Now, on to the next item on the agenda. I wanted to communicate to each of you that we will no longer be serving Snickers bars, Milky Way bars, or Three Musketeer bars in the vending machines, because they keep getting stuck, and Henrietta Geldon in purchasing is sick of hearing employees thump their fists on the vending machine. Roger's team tells me that Twix bars slide out much easier, so we will be switching to Twix bars, going forward. Any questions?"

Different Customers, Different Behaviors

2009-11-04T20:15:00.001-08:00

Online Marketing Simulations (buy the book on Amazon.com) routinely show us that different customers exhibit different behaviors.

Go to the sample spreadsheet (e-mail me for a copy), and do the following:

Enter 0.00 in C6 - G6.
Zero-out cells B149 - B340.

Here, we're running a simulation, evaluating only how customers with a Grade = A (the very best customers) perform over time. Play close attention to cells J5 - N7, these cells represent the sales trajectory of best customers across three advertising channels.

Don't save these results. Close the spreadsheet, then open it again, and do the following.

Enter 0.00 in C6 - G6.
Zero-out cells B101 - B292

Here, we're running a simulation, evaluating only how customers with a Grade = F (the most marginal customers in your database) perform over time. Look at cells J5 - N7. What do you observe? Well, Channel 2 gets disproportionately more sales, while Channel 3 gets disproportionately less sales.

This happens in your business too, folks. You will see that your best customers have purchase preferences that are different than are the preferences of marginal customers.

Use this information to your advantage. Know which marketing channels appeal to best customers, and to marginal customers!

Chasing Fireflies: A Cataloger Growing In The Teeth Of A Recession

2009-11-03T20:15:00.000-08:00

If you are a paying subscriber to the Puget Sound Business Journal, you can access this article about Chasing Fireflies, a Seattle catalog (gasp) kids apparel startup.

This business started three years ago at $0, and ended 2008 at $22 million in annual sales. The article suggests that, after a flat spring, sales are increasing again this fall.

Here's a link to their website. Here's a link to their Facebook presence, full of both negative customer sentiment and the loyalty of 1,600 fans.

Oh, there would be a long line of pundits ready to bash this business, especially in the online marketing and social media community.

They use list rental practices to find new customers, a terrible customer experience. FAIL!
Their e-mail marketing strategy is not targeted or personalized nearly enough. FAIL!
Their website is probably not optimized for search engine optimization. FAIL!
They do not have a Twitter presence. FAIL!
Their homepage is not optimized for maximum conversion. FAIL!
The actually present merchandise via print, in catalogs (gasp), destroying the planet. FAIL!
No live chat on the homepage. FAIL!
No recommendation engine on the homepage for cross-sell & up-sell. FAIL!
No stores, no "bricks 'n clicks" strategy. FAIL!
There is no mobile marketing opportunity, no iPhone app. FAIL!
They send catalogs without allowing you the right to determine contact frequency. FAIL!
They send e-mail campaigns without allowing you the right to determine contact frequency. FAIL!

I'm sure there's a thousand critical business mistakes that I failed to point out.

And yet, their catalog (gasp) business is growing multiple times faster than Forrester's predicted 8% online growth rate this Holiday season.

How is that possible?

Now, clearly, every company can do a better job, heck, every person can do a better job. But something must be executed correctly in order for a catalog (gasp) company to grow in the teeth of The Great Recession. Might a fusion of merchandising and marketing trump simple marketing tactics?

Paid Search: Low Long-Term Value?

2009-11-02T20:15:00.000-08:00

Get your copy of Online Marketing Simulations via Amazon.com.

Paid Search is an absolute enigma, folks.

Talk to online marketing experts, and it is truly a big deal, the primary way many online brands acquire new customers.

Talk to offline marketing experts, and you hear a common theme ... "paid search customers have poor long-term value."

Long-term value is a relative term, comprised of two components ... "involuntary expense", and "voluntary expense".

Voluntary Expense includes all outbound direct marketing expenses that work for/against long-term value. Catalog marketers often begin to send paid search customers a veritable plethora of catalogs. If the paid search customer has no interest in catalog marketing, long-term value is going to decline, rapidly. The marketer is making a voluntary choice to speak with the customer, impacting long-term value.

Involuntary Expense happens after the customer is acquired. If a paid search customer elects to use paid search in the future, the brand experiences "involuntary expense". Sure, the brand could choose to not participate in paid search, but if the brand does participate, expenses are rung up in an involuntary manner, essentially controlled by the customer.

Marketing Executives use Online Marketing Simulations to understand how the customer is likely to migrate and change in the future. Simply isolate the paid search customer, and then see which channels the customer is likely to purchase from over the next five years. You can literally tally-up the offline advertising expense you'll incur, and the paid search expense you'll incur.

If you find that paid search customers are unprofitable, eliminate voluntary expense (i.e. offline direct marketing that you control). You may find that paid search customers have low long-term value only because they don't want to be marketed to with offline direct marketing activities. You may also find that paid search customers who purchase specific items have lower long-term value, or that non-branded terms have lower long-term value, as an FYI.

For those of us managing businesses where we do a lot of outbound marketing (post cards, catalogs, e-mail), long-term value is controllable. It is perfectly acceptable to acquire a paid search buyer that generates $5 of long-term value, and it is perfectly acceptable to acquire a customer via postcard marketing that generates $50 of long-term value. It is how we manage the long-term value that matters! Heck, let's go find ten of the paid search buyers and just deal with the subsequent value difference.

Most important, use Online Marketing Simulations to understand the long-term value of all customers from all advertising micro-channels!

This Week In Business: The Target Customer

2009-11-02T14:24:00.000-08:00

Caught between the social media snake oil ("Dell sold $3 million on Twitter, see, it works!") and the current state of affairs ("we have a Twitter presence and we've only been able to encourage 197 customers to follow us") is reality.

The reality is that we don't have a good understanding of our "target customer".

No amount of data can supplement a vision for who the target customer is. And once you have a vision for who your target customer is, marketing becomes a lot easier.

Let's say that your target customer is a 57 year old woman. Do you honestly believe that you will have a robust mobile marketing program? Do you honestly think that you'll get 394,000 fifty-seven year old women to follow your sales messages on Twitter?

Let's say that your target customer is a 27 year old woman. Do you really think this customer wants to receive 27 catalogs in the mail every year?

A thorough understanding of the target customer goes a long way toward executing a successful marketing program.

For instance, we hear a lot these days about e-mail marketing falling by the wayside, being consumed by social media. Well, if your target customer is 45-54 years old, this may not be true. If your target customer is 25-34 years old, this may be 100% true. In either situation, the CMO ignores the screaming voices of the punditocracy, implementing marketing programs that are appropriate to the target customer.

The e-mail marketing community, folks now defending their niche from the onslaught of the social media elite, used to be critical of catalog marketers. Many marketing experts proclaimed that catalog marketing has been dead for a decade. And yet, if your target customer is 55-64 years old, there's still no single better vehicle to encourage a purchase than a catalog. Catalog marketing is alive and well to a certain target customer. Catalog marketing is dead when viewed across the entire demographic spectrum. Catalog marketing is also dead among the 55-64 year old segment hoping to improve the health of the planet.

As you can see, knowing your target market means everything to marketing success. This isn't a revolutionary idea.

We've been punched in the skull a few too many times, when it comes to thinking about marketing strategy. The social media folks, who run in circles who love social media, think social media solves every problem. Print marketing folks will always be able to find a metric that suggests that print marketing matters (67% of people age 18-69 say reading the mail is easier than reading a computer monitor). Banner advertisers know that 8% of the population click on almost all of the ads. E-mail marketers know that one in five subscribers are responsible for the majority of clicks. Based on localized metrics, we generalize, suggesting that everybody can be responsive to our marketing genre.

Heck, the whole "multichannel" movement has largely failed because we made the assumption that every good customer wants to interact with us across multiple channels.

There's never been a more important time to thoroughly know our target customer. We can use this knowledge to determine which marketing strategies are appropriate for customers in different life stages. Increasingly, my projects suggest that each customer has a channel preference, has a channel she is leaving, and a channel that she may be heading toward. We confuse this migration for being a rallying cry for "more of everything". Let's learn as much as we can about the target customer, and then offer the customer a better experience.

Kindle Version of Online Marketing Simulations is Available

2009-11-01T20:20:00.000-08:00

Good news for those of you who are into reading books on your Kindle ... Online Marketing Simulations is now available in Kindle format!

Click Here For Paperback Version ... $19.95.

Click Here For Kindle Version ... $4.99.

By the way, loyal blog readers, the Twitter audience is drubbing you in sales totals ... by a factor of nearly 4 to 1. Are you going to stand for this? Are you going to let the Twitterati run circles around you? Or are you going make the technological leap and be competitive and buy this book? I mean, I've been brazen in my claims that you cannot sell anything on Twitter, and yet this book is selling so much better among the analytical types following on Twitter than among this audience. Oh boy!

Also interesting is the fact that the book, in the very early stages, is being embraced by the online vendor community, in fact, it's a bit of a surprise to me. I strongly feel that the methodology should be part of online marketing software tools.

Thanks to all of you who made the debut of the book the 9,500th best selling book on Amazon last Wednesday, I appreciate it! That's quite a feat for a self-published book with no marketing behind it whatsoever.

Dear Catalog CEOs: Demographics

2009-11-01T20:15:00.001-08:00

Dear Catalog CEOs:

Unless you are Miles Kimball, there are significant demographic challenges awaiting the industry.

Most commerce happens among customers age 25 - 60. Clearly, customers older than 60 purchase lots of goodies, and the 24 and under crowd have a whole different set of purchase priorities.

But the big, meaty portion of the bell curve is between 25 and 60.

And with each passing year, we transition through a new portion of the bell curve.

A 60 year old customer with catalog preferences leaves the meaty portion of the curve, replaced by somebody who just turned twenty-five.

Think about the products you sell, and the channel you choose to sell those products in. Which customer, the customer who just turned 61, or the customer who just turned 25, is more likely to buy your merchandise?

Which customer, the customer who just turned 61, or the customer who just turned 25, is more likely to be appreciative of receiving a catalog in the mail?

And then we have additional inflection points.

Age 50 - 60 = Orders via catalogs over the telephone.
Age 40 - 50 = Orders via catalogs online.
Age 25 - 40 = Orders online.

The problem here is that a customer doesn't move from the 25-40 online cohort to the 40-50 cohort that orders from catalogs via your website. The advertising habits do not change as the customer ages, meaning that the 40 year old won't become more likely to become a telephone shopper in ten years.

All of this means that the audience that is receptive to catalogs is shrinking, almost unnoticeably on an annual basis, shockingly fast when viewed over the course of a decade.

I have cause for concern when I hear statements like "80% of our e-commerce orders came from customers who received a catalog in the past month." This suggests that management has a disproportionate focus on catalog marketing.

Modern cataloging is a lot like managing a 401k account. You remember the days when a financial advisor would show up at work, and strongly recommend "diversification", right? You weren't supposed to invest all of your retirement money in just one fund. You were supposed to spread your money out across numerous funds, so that if one or two of your funds collapsed, you didn't lose everything.

The exact same logic holds in modern cataloging.

We must diversify. We must cultivate an e-commerce audience that is completely independent of our loyal catalog customer following. We simply have no choice.

I recommend a target of at least 50% or more of e-commerce demand that comes from non-catalog sources.

Let me say that again: At least 50% or more of your e-commerce demand should come from non-catalog sources, or your "portfolio", if you will, is not diversified enough, leaving your business model at serious risk.

I can hear the complaints already.

"Online customers are price sensitive, I cannot give away the store with cheapest price and free shipping, or I'll go broke."
"Paid Search customers have poor long-term value, they only care about finding the best deal today, they are loyal to Google, not to my business."
"E-mail marketing is awful, I only get $0.07 per e-mail message, while I get $2.77 per catalog mailed."
"Affiliate marketing stinks, why do I have to pay those folks a commission when the customer would have purchased anyway?"
"Social Media is completely unproven. I don't have time to tweet about my order entry system task force meetings!"
"Mobile marketing is a fad, nobody cares about an iPhone app when they can browse the entire assortment on my website on a 23" monitor via a broadband internet connection."
"You don't understand my customer. My customers are unique, they love catalogs."
"You don't understand my business model, we sell widgets/gifts/apparel/books/tools, and you cannot sell those things online without paper supporting them."
"My daughter is 27, and she loves receiving Pottery Barn catalogs in the mail. So there. I think the younger generation just needs to be trained to love print."
"Nobody wants to read things off of a computer screen, print is a far more effective vehicle for communicating a merchandising story."
"Our matchback vendor tells us things are just fine."

You know what? Every one of those quotes could be accurate.

But looking at the financials of catalog brands all across our great country, it doesn't seem likely that every one of those comments will align in a way that is beneficial to catalog brands. Heck, a well respected industry expert recently told me via e-mail that 1/3 of catalog brands will not exist in their current form on January 1, 2011.

Yes, this is a person that you trust, folks, a person who does not boast, and does not write content online. This is an Executive who is in the trenches with us.

Given that information, it is time to diversify. It doesn't matter that the e-commerce side of the business is less profitable or less loyal or less fun or more fickle.

We simply have no choice. It is time to diversify. Now.

As always, I am here to help you through this transition. We will get through it!

Thanks,
Kevin

Saks and Flash Discounters: A Micro Channel

2009-10-29T20:20:00.000-07:00

The majority of the comments I get when I talk about how one might use flash business models (Gilt Groupe, Rue-La-La) are negative. Those of you who share your thoughts tell me that I don't understand how your business works, or that this style of shopping is nothing more than a short-term fad, or that your core customer isn't interested in daily unannounced clearance items at deep discounts.

On Thursday, Saks decided to jump in to the fray (article via SmartBrief via Wall St. Journal).

On Wednesday, Rue La La was sold for a paltry $350,000,000. And by the way, Rue La La promotes another micro-channel via an iPhone or iPod Touch app.

Granted, SmartBargains was part of the deal, but even if it is half of the deal, you're still looking at $175,000,000 for Rue La La. I will be the first to concede that companies have been known to dramatically overpay for a business that fails shortly thereafter. And I will also concede that mobile marketing has largely been all hype and no substance, from a commerce standpoint.

That being said, might it be worth testing your own flash sales micro-channel, just to see if it is something your customer is interested in? Just a test? You'll quickly learn, from a segmentation standpoint, who your discount-focused customers are, and that knowledge alone will help you promote your full-priced business better, won't it? And that iPhone app? That, too, is a data point that allows you to understand which customers are unlikely to respond to traditional direcxt marketing. Isn't that knowledge valuable to your business?

The world is changing.

Ok, your turn. Use the comments section to describe the reasons why this style of liquidation selling is either good or bad.

Gliebers Dresses: Decomposing Item Performance

2009-10-29T20:15:00.000-07:00

Welcome to this week's Executive Meeting:

Glenn Glieber (Owner): "... needless to say, reaction to my comments at the conference has been highly negative in the blogosphere and on Twitter, but was very favorable among other catalog CEOs."

Meredith Thompson (Chief Merchandising Officer): "Kevin, is that you?"

Kevin: "Yup, it is me."

Meredith Thompson: "We're trying to understand how productive our new strapless tube dress is, Kevin".

Pepper Morgan (Chief Marketing Officer): "In the old days, it was easy to measure the profitability of merchandise, and it was hard to measure the profitability of a customer. But these days, it seems like the situation is reversed."

Roger Morgan (Chief Operations Officer): "Absolutely. This item has never been featured in an e-mail marketing message, and yet, it seems like the item sells really well during the twenty-four hours following an e-mail blast."

Lois Gladstone (Chief Financial Officer): "I want to install a discipline around here, one where we make formal decisions about the merchandise we choose to invest marketing dollars in, vs. letting items be featured online without the need for expensive catalog support."

Roger Morgan: "But that's hard to do, Lois. I mean, we know that when we mail a catalog, we get $1 offline for every $1 generated over the telephone. But that relationship is an average, right? The relationship doesn't hold for every single item."

Pepper Morgan: "And the relationships are confounded by marketing strategy. When we bump up our paid search efforts, we notice that we capture more new customers in our catalog marketing activities, but the new customers are skewed toward items featured in the paid search ads."

Kevin: "Since we're about to select customers for the January catalog, let's try something. Randomly sample 16,000 customers, and assign them to one of four treatments for the first six months of the year. Group One = Receive All Catalogs, Receive All E-Mail Campaigns. Group Two = Receive All Catalogs, Receive No E-Mail Campaigns. Group Three = Receive No Catalogs, Receive All E-Mail Campaigns. Group Four = Receive No Catalogs, Receive No E-Mail Campaigns." Lois Gladstone: "Six months?" Kevin: "Yes. This test will allow us to do a few things. First, we get to see how customer behavior changes over time. Second, we get to see if there is a multiplicative impact between catalog marketing and e-mail marketing. Third, we get to see how paid search is influenced by catalog marketing and e-mail marketing. Fourth, we should be able to measure, at a merchandise division level, if there is a difference in the $1 offline = $1 online relationship."

Lois Gladstone: "Can we afford to do a test of this magnitude?"

Kevin: "I don't think that catalogers can afford not to do this style of testing anymore. Your online brethren are doing this type of testing, they call it 'optimization', in real time, all of the time. The only way we, as an industry, are going to profitably navigate our way to the future is to truly measure how customers behave, with and without advertising."

Roger Morgan: "But we do those things, what are the called, 'matchbacks', right? Doesn't a matchback give us the answer we're looking for, without the need to do testing?"

Kevin: "Matchbacks are good, you're far better off doing them than not. Unfortunately, matchback programs are built off of rules, rules determined by humans, not by customers. For instance, you'll use a 60 day window to match online orders back to catalogs. That's a rule. If a customer clicks through an e-mail campaign two days after receiving a catalog, you allocate 90% of the order to the catalog and 10% to the e-mail campaign. How do you know that? You really cannot get into the mind of the customer to understand if 10% of her thought process was influenced by the e-mail campaign, can you?"

Lois Gladstone: "Isn't that what the online marketing folks do, too? They call it 'attribution', don't they? If they're doing it, we should be doing it too, right?"

Kevin: "Yes, online folks are concerned about allocating orders based on first-touch or last-touch or blended-touches. They are dealing with the exact same problem you are dealing with. And they are making the same mistakes you are making."

Meredith Thompson: "So are things hopeless? Can we not properly measure merchandise profitability?"

Kevin: "Hopeless? No. Harder? Yes, much harder. We can no longer prove what caused a customer to order merchandise. Fifteen years ago, it was easy. If you send an e-mail to a customer offering a Thanksgiving dress and she instead goes online and likes your strapless tube dress, you're kind of sunk. Does that mean you should offer the Thanksgiving dress next year, or a strapless tube dress? Merchandise profitability becomes an inexact science, blending more and more with marketing strategy. At least with the tests you'll execute, you can get a directional idea how profitable various merchandise divisions are, and then you'll apply rules, something I criticized earlier, and you'll get as close as you can get. But by and large, merchandise profitability is harder to measure than customer profitability, and will continue to be harder to measure."

Glenn Glieber: "In some ways, folks, I'm glad this is harder to measure. If it is harder to measure, then it requires more art, more inference, more gut feel. And honestly, we all get a rush from making correct decisions without good information. Nobody likes to have all of the answers on a dashboard, robotically driving where the business is headed. Honestly, I think a golden age of merchandise leaders can emerge from this. Don't use this as a crutch for indecision. Use this as an opportunity to allow your genius to shine through. Now, let's move on to the next topic. Tomorrow is Halloween, and I want to make sure this place doesn't look like a pit on Monday. So all decorations need to be down by 4:00pm."

Dear E-Mail Marketers: E-Mail Is Dead, Huh?

2009-10-28T20:15:00.000-07:00

Dear E-Mail Marketers:

You represent a fun niche. The leading pundits have declared your medium "dead", less than two decades after being formally launched. You now join catalog marketers in the direct marketing graveyard.

Sure, your niche is still highly profitable. Pundits, however, don't care about profitability. They care about "what's next".

Companies, however, care an awful lot about profitability. It turns out that companies cannot stay in business unless they generate a lot of profit.

Maybe it is time for e-mail marketers to finally prove that e-mail marketing generates long-term profit.

Carefully review your Online Marketing Simulations (buy the book here on Amazon.com, the 9,500th best selling book on Amazon yesterday!), paying specific attention to what customers who purchase from the e-mail advertising micro-channel "do next".

Often, you'll find that e-mail drives future sales increases in other channels. You'll notice that e-mail customers become paid search buyers, or respond to offline ads, or become so loyal that they no longer require advertising to purchase in the future. Heck, in a lot of my projects, I can prove that Google absolutely loves e-mail marketing --- e-mail causes a purchase to happen, and then customer behavior changes, resulting in future paid searches. In other words, your e-mail marketing activities fuel future success for Google.

Use your simulations to analyze the long-term value of the social media shopper, and compare it with the simulated long-term value of the e-mail customer. Seriously. Do it! Tell the world what you find!

E-Mail marketers, once you have the data to defend your channel, defend it!!! It's not going to be good enough to say that e-mail is a relationship builder, or is the glue that holds marketing together, or is the tactic that feeds social media activities. Prove the value of your channel, demonstrating the value via long-term sales and profit. Show what happens to a business if e-mail marketing doesn't exist. This is one of the best applications of an Online Marketing Simulation.

Dear e-mail marketers. Buy the book. Apply the techniques outlined in the book. And then prove to people the profit your discipline contributes to your business.

Amazon.com Is Now Offering Online Marketing Simulations!!

2009-10-28T08:50:00.000-07:00

Well, that happened 10 days faster than it was supposed to happen.

You can now purchase Online Marketing Simulations at Amazon.com --- click here for more details.

Click here to search inside the book, to see the table of contents and a few tidbits.

And if you're waiting for the Kindle version of the book, it will be ready shortly, available for $4.99.

Read the book. Create your own spreadsheet. Apply the concepts to your business. Be a sage, be one of the only people in your company who knows whether your business is forecast to grow indefinitely, or is heading toward a problem.

If you are particularly "geeky", you'll enjoy the 50-ish pages of computer code at the back of the book.

If you're a CEO, you must have this information. Every CEO must know where business is heading, and must be ready to mitigate negative outcomes.

If you are a Marketing Executive, you will be light years ahead of your competition by having the outcome of an Online Marketing Simulation.

These are the projects that CEOs are hiring me to perform these days, so buy the book, and get busy on your own OMS project!!

This Week In Business: Twitter And Database Marketing

2009-10-27T20:15:00.000-07:00

You aren't likely to find many folks doing this yet. But it is coming.

Let's pretend that MineThatData.com is an e-commerce business with $100,000,000 in annual sales, big enough to have people saying things about the business on Twitter.

Let's assume that you are a loyal customer. As you go through the checkout process, I ask you to volunteer your Twitter ID ... it isn't necessary to complete checkout, mind you, but I do ask for it, and you volunteer it.

Now that you've volunteered your Twitter ID, I give your ID to my contact center staff, and I ask them to research what you have to say about my business online. It is their job to ascertain whether you say positive things about my business, or negative things. I ask them to enter a value in the order entry system --- an "A" if you say nice things and evangelize my brand, a "B" if you've ever said anything nice, a "C" if you never say anything, a "D" if you criticized my brand once, and an "F" if you are out there bashing my brand.

Get the picture? I've just scored you based on your sentiment toward my brand.

So now it is November 15. We're planning our wonderful Cyber Monday e-mail campaign.

My team decides to look at your "Sentiment Grade". They segment you into different e-mail campaigns:

Grade of "A" = "Take 20% Off And Get Free Shipping".
Grade of "B" = "Take 10% Off And Get Free Shipping".
Grade of "C" = "Enjoy Free Shipping".
Grade of "D" = "Have Any Concerns, Please DM (Direct Message US) For Help".
Grade of "F" = Not targeted for an e-mail campaign.

It is just a matter of time before this happens. You will see text mining algorithms, vendors with sentiment solutions, and contact center staff all combing through everything you say, rewarding customers who are complimentary to your brand.

What are your thoughts? Is it acceptable for brands to comb through your social media commentary, tabulating positive and negative sentiments into their customer database, rewarding customers who are "brand advocates"? When is it acceptable to do this ... when you volunteer your Twitter ID to the brand, or can the brand just go out and proactively research your behaviors without you knowing about it?

Thoughts?

The Pre-Release of Online Marketing Simulations!!!

2009-10-26T20:15:00.000-07:00

I am so excited!!

Click here to purchase my new book, Online Marketing Simulations. The book is being pre-released via my publishing platform --- so if you are dying to have the book, you can buy it today via Createspace for the same $19.95 fee that you'll be able to purchase it for on Amazon.com in two weeks, plus a shipping/handling fee.

Because you are a loyal blog reader, you get access to the content two weeks before the general public!

About fifteen years of intense customer research have gone into the creation of this industry-leading methodology.

This handbook walks you through an e-commerce online marketing simulation. You'll get to explore the ways that customers of different levels of quality, merchandise preference, and online advertising micro-channels (Affiliates, Offline Ads, E-Mail, Social Media, Print Ads, Search, No Attributed Source) all interact with each other. You will clearly see the "MVP", or "Most Valuable Path" that a customer takes as the customer migrates from first purchase to loyal shopper.

Most important, you will learn how to optimize your online business for long-term success. Current web analytics software applications fail to provide you with a five year sales forecast by advertising micro-channel / merchandise division. The Online Marketing Simulation allows you to play "what-if" games, identifying the optimal strategy for long-term success.

And if you don't think you'll be in your job 24 months from now, then Online Marketing Simulations allow you to optimize your business for the next twelve months, so that you can earn a nice bonus!

Here's what you get when you purchase this book. There are plenty of geeky details, and plenty of high-level strategy appropriate for a CEO, CMO, or CFO.

106 pages of examples that illustrate how to execute Online Marketing Simulations.
A companion spreadsheet to work through examples and use in your projects.
51 examples and accompanying tables.
More than 50 pages of programming code, so that you can populate your own spreadsheet.
162 pages, total.

Who should buy this book?

CEOs looking to predict where e-commerce sales are headed over the next five years.
CMOs trying to allocate marketing dollars across advertising channels.
Vendors looking to add important functionality to their software suite.
Online Marketing Executives trying to demonstrate the value of each advertising channel.
Web Analytics Experts, especially those looking to obtain skills necessary to analyze the entire business, not just the online channel.
Business Intelligence mavens with an interest in simulating future activity.

I'm so excited that it is finally available!!!!!!! Help spread the word!

Coremetrics Offer Exclusively For Omniture Users

2009-10-26T12:30:00.000-07:00

Coremetrics and Omniture are leading web analytics providers. Omniture was recently acquired by Adobe, creating quite a buzz in the business intelligence and web analytics arena.

Today, I received the following offer from Coremetrics and Chief Marketer. Here is a link to the offer in the e-mail message. You can click on the image above to see the offer as well.

Since you are all marketers or analytics experts, think about how you would answer the following questions, as they relate to your business.

Question #1: Chief Marketer did not rent my e-mail address, sending the message on behalf of Coremetrics because of a previous opt-in / opt-out preference of mine. Is this an e-mail marketing strategy that is appropriate for your business? Describe why it is or is not appropriate.

Question #2: I am not an Omniture customer. The offer in the e-mail marketing message only applies to Omniture customers. In your opinion, what benefits are obtained by the recipient in an instance where the offer cannot be redeemed by the recipient?

Dear Catalog CEOs: Much Smaller Catalogs

2009-10-25T20:15:00.000-07:00

Dear Catalog CEOs,

Some of you ask me to do a unique analysis, one I call a "filtering" analysis.

Others might refer to this analysis "segmentation" or "persona development". The objective, honestly, is the same.

And for catalogers, it has never been more important.

I'm not talking about traditional RFM segmentation. Instead, I am talking about creating a series of "strategic segments", segments with unique characteristics.

In the example I have here (click to enlarge the image), there are three merchandise divisions. This catalog company sends a 144 page catalog to each customer, with equal page counts attributed to each merchandise division. In this case, about 60% of the customer file only buys from one merchandise division.

So instead of sending a 144 page general merchandise catalog, let's create four small versions. Each version has 48 pages instead of 144. Version #1 only has merchandise from division #1. Version #2 only has merchandise from division #2. Version #3 only has merchandise from division #3. Version #4 is small, and has a sampling of each merchandise division for customers who buy from multiple merchandise divisions.

We target each smaller version to the audience that enjoys it. Your job is to create each 48 page version just like you normally would.

Take a look at the profit and loss statement in the image above. Clearly, customers spend less because they are receiving fewer pages. But even if the smaller catalogs cost $0.60 each (vs. $1.30 each for a large catalog in the example), it is more profitable to send the four smaller versions, one version per customer, than to send the general catalog to each customer.

Honestly, it is easier to send the general catalog to each customer. It will always be easier. The inertia within your organization will demand the easier solution.

But we're in a position where profit dollars are what are needed, right?

So when you're looking for new strategies for the second half of 2010, give this strategy a try, as a test, and see what happens!

Thanks,
Kevin

Gliebers Dresses: A Panel Discussion

2009-10-22T20:15:00.000-07:00

This week, we take a peek at a panel discussion at a popular direct marketing conference. The panel discussion is hosted by Chip Cayman, a popular industry marketing consultant. The room is filled with maybe 300 online and catalog marketers. Here we go.

Chip Cayman (Moderator, A Popular Industry Marketing Consultant): "Welcome everybody to the 10:25am session titled 'Best Practices in Customer Engagement'. Today we have four industry experts who will offer bold insights into the future of customer relationships. First up, we have Glenn Glieber, Owner of Gliebers Dresses, a New England based purveyor of fashion apparel. Next, we have Dolly Pickens, CEO of Zuppie, a customer evangelism consultancy. To Dolly's left we have Greg Markham, Online Marketing Director at Boosky.com, and finally, we have Sarah Wheldon, Chief Marketing Officer at Anna Carter, a fashion dress brand. Ok, let's get started. Dolly, the first question is for you. How has the consumer changed over the past two years?"

Dolly Pickens (CEO of Zuppie): "Great question, Chip. The customer has literally been transformed. You all remember how Motrin angered their audience, right? Well, 'Motrin Moms', as they were known, fought back using social media. The repercussions reverberated through the Executive team at Motrin. Brands simply have to understand that an engaged customer is a loyal customer. I like to look at what Booksy.com is doing, they are using social media to foster deep relationships with brand advocates. And then you factor in the economy. Families are hurting. Brands that foster deep relationships will have a competitive advantage for decades to come."

Chip Cayman: "Glenn, how about you? How has your customer changed?"

Glenn Glieber (Owner, Gliebers Dresses): "Like everybody else, we saw a spending sea change happen last fall. This is the 'new normal', as I like to call it. We responded by re-vamping our catalog contact strategy, and by adding a new loyalty program --- buy four dresses, and get free shipping for the rest of the year."

Chip Cayman: "Fascinating. Greg, how does Boosky.com respond to changes in customer behavior?"

Greg Markham (Online Marketing Director, Boosky.com): "We really focus on the customer experience. We did a multivariate test, comparing Microsoft Sans Serif to Verdana to Times New Roman as the preferred font on our homepage, and found that Verdana increased conversion rates by 8.4%. We're always looking for ways to leverage improvements in campaign response."
Chip Cayman: "Did you catch that one, folks? Write that down. Verdana improved conversion rates by 8.4%. Your conference fees have already been reimbursed with that tidbit alone! Ok, Sarah, how has Anna Carter responded to changes in customer behavior?"

Sarah Wheldon (Chief Marketing Officer, Anna Carter): "First of all, Chip, thanks for asking me to be on this panel! As you may already know, we are discontinuing our catalog marketing program on January 1, 2010. We have found that catalog mailings are bad for the planet, and we learned that prospects don't want their mailboxes spammed with catalogs they didn't ask to receive. We received a lot of feedback via social media, and we learned that customers hate to have their names rented to other companies. So we're going in a different direction. We listened to our customers, and going forward, we will provide them with the best possible online shopping experience."

Dolly Pickens: "Sarah, are you saying that catalog companies actually rent names and addresses? That's a terrible customer experience, terrible. For shame, catalogers. You rape the planet with your misguided use of old growth forests, and you violate consumer rights by forcing them to receive catalogs in the mail. My goodness. No wonder the catalog industry is fighting for survival."

Sarah Wheldon: "Yes Dolly, catalogers have actively practiced list rental strategies for decades."

Dolly Pickens: "Glenn, is that something you do?"

Glenn Glieber: "I think the broader question we're asking is, how do you get your brand out in front of a million or two million prospects if you don't rent names from your competitors? Does anybody on the panel have any solutions to this issue?"

Dolly Pickens: "Oh Glenn. Look at what Boosky.com does. They use social media to advocate on behalf of their brand, they use paid search to acquire new customers, and they have maybe the biggest affiliate marketing program on the planet, second only to Amazon. You don't need to rent 2,000,000 names every month if you create a great customer experience."

Glenn Glieber: "Greg, how exactly do you get your brand out in front of several million prospects, over and over and over again?"

Dolly Pickens: "I can take that one. Greg's team partnered with my team on a social media brand advocacy campaign that increased Twitter followers by 32%. And then Boosky.com created an iPhone app that resulted in 1.4% of total net sales coming from mobile marketing programs."

Chip Cayman: "WOW! Did you get that one, folks? Boosky.com leveraged a social media brand advocacy campaign that increased Twitter followers by 32%. And now a significant minority of sales are being generated by mobile marketing. That's fantastic!"

Glenn Glieber: "But how many Twitter followers did you have, before and after the program?"

Dolly Pickens: "I'll take that one. I think Boosky.com had 20,000 before the program, and about 26,400 after."

Greg Markham: "And during the campaign, the conversion rate from customers coming from Twitter improved from 9.3% to 9.8%."

Chip Cayman: "OUTSTANDING! Did you write that one down, folks? By using a social media brand advocacy strategy, Boosky.com improved the conversion rate of Twitter followers from 9.3% to 9.8%. You guys are really leveraging new media to improve brand relevancy, aren't you?"

Dolly Pickens: "Well, it is all about being there for the customer during these trying economic times, isn't it?"

Sarah Wheldon: "That's so true, isn't it, Dolly? I mean, you want to provide a great experience for the customer, like we do at Anna Carter. We don't use promotional gimmicks, and starting January 1, we're not going to spam the customer with unwanted catalogs anymore. We will treat our customer with honesty and integrity. You won't see any phony loyalty programs from Anna Carter. We trust that if we treat the customer right, we will be paid back down the road."

Glenn Glieber: "Let me ask a question. Sarah, how do you plan on making up for the sales you will lose when you stop mailing catalogs to customers?"

Dolly Pickens: "Who cares? I'll bet Anna Carter, with such a strong brand name, has loyal customers who will keep shopping. I'd support a forward thinking brand like Anna Carter. And the positive buzz around the brand should more than make up for the loss in sales."

Glenn Glieber: "But that's not a real answer. I want a real answer. Sarah, would you be willing to share with this audience how you plan on recouping the sales that you will lose when you stop mailing catalogs? And what about all of the employees who supported catalog marketing for decades? Will they even have a job? Do you have any loyalty to those individuals, the very folks who helped make your brand what it is?"

Greg Markham: "At Boosky.com, we found that global website conversion increased from 6.13% to 6.34% when we downsized customer service reps, and replaced them with information technology experts who could improve the performance of the website. So maybe Anna Carter will also go through a similar transition."

Chip Cayman: "AMAZING! Did you get that one, folks? Website conversion at Boosky.com improved from 6.13% to 6.34% by transitioning staff from a customer service model to one where the information technology team is better staffed. Folks, write these things down, what we're learning here is important."

Glenn Glieber: "Sarah, I still don't have an answer to my question. I'm going to guess that you will lose $50,000,000 in sales by not having a catalog. How will you meet merchandise/inventory minimums with such a sales loss? Will you generate enough profit to cover your fixed costs? What are you going to do to recoup the sales you lose, send more e-mail campaigns, that won't work. And you can never spend enough money in search to reach a critical mass that enables your business to thrive. So, Sarah, would you be willing to answer my question?"

Greg Markham: "At Boosky.com, we learned that using the phrase 'Trust Us' in paid search copy caused paid search conversion rates to improve from 5.44% to 5.62%, and increased traffic from clicks by 37%."

Dolly Pickens: "See you don't need to rent names to have success. Use technology, and real, genuine, authentic customer relationships. The rest will take care of itself."

Chip Cayman: "You folks at Boosky.com are just amazing!"

Glenn Glieber: "Does anybody in the audience want to see my question answered by Ms. Wheldon?"

Sarah Wheldon: "Glenn, you know I cannot publicly answer that question, that's proprietary knowledge. But rest assured, we've analyzed the issue thoroughly, we understand the consequences, and we believe the knowledge we've gained gives us a competitive advantage over other dress purveyors."

Dolly Pickens: "And you won't be violating customer rights like you do when you rent names. That's what really matters, here."

Glenn Glieber: "What really matters here is how you create traffic and interest. Anna Carter is essentially eliminating the primary vehicle for creating traffic and interest."

Sarah Wheldon: "That's wrong, our primary vehicle for creating traffic and interest is our website. Glenn, you go ahead and keep generating traffic and interest with your catalogs. You spend the money to rent a name and to put a catalog in the hand of the prospect. The prospect goes to Google, does a search, and because we at Anna Carter execute online marketing well, we'll intercept the demand you generate. That's one way to make up sales, and quite honestly, I'm thankful there are other marketers out there willing to use offline marketing to create demand that I can intercept and convert on my website. You represent free marketing for my business."

Glenn Glieber: "I love free marketing! But what you just said sounds unethical."

Sarah Wheldon: "It's not unethical. It's competitive. You spend money on offline marketing. You create demand. The liberated customer that Dolly celebrates goes to Google, and Google does the damage ... Google decides the websites that the customer sees, not me. If you have an issue, take up your issue with Google. In the meantime, I am going to intercept your customers via Google, and re-direct their demand from Gliebers Dresses to Anna Carter. Keep mailing catalogs, Glenn! We at Anna Carter applaud your efforts!"

(the audience roars with laughter).

Dolly Pickens: "This is exactly why you must have a personal, authentic, warm, one-to-one relationship with every customer. If you are Gliebers Dresses, you don't want your customers to go to Google and then be re-directed to Anna Carter. I'd be worrying about that, Glenn, I really would. Google will doom you."

Glenn Glieber: "Do you know what I worry about when I wake up in the morning? I worry about how to keep 250 people employed. I know every one of my 250 employees, by name. I know their kids. I know that my catalog sent kids to college, in fact, my scholarships paid for the education of close to 100 students. I know that my catalog created Doctors, and Lawyers, and County Clerks, and Electricians. My business generated a profit in 39 out of 42 years. I know that my catalog was successful enough to pay close to $12,000,000 in federal taxes. The federal tax contributions, caused by outstanding production on behalf of my employees protect third-party opt-out services like Catalog Select, businesses structured as .org's from paying any taxes, funding their ability to publicly bash me and my business practices. I can look at I-93 and realize that my employees and I paid for the concrete that allows people to go up to Lake Winnipesaukee for an extended vacation."

Chip Cayman: "Ok, Glenn, why don't we ..."

Glenn Glieber: "What I don't understand is the lack of respect, folks. Look at this panel today. I thought we were here to talk about best practices in customer engagement. Instead, we have panelists who decide to criticize me and my business model. When did that become acceptable? Dolly, you talk about being a customer advocate. And yet, you criticize Motrin, you did it here again today, and in my hand I have the output from every blog article and tweet that you ever wrote about Motrin, because Google remembers, Dolly. If you say enough bad things, Google will doom you, too. It is so easy to criticize people when they aren't standing in front of you, when they cannot defend themselves. By criticizing Motrin, you violate your own social media best practices. Why would Motrin ever want to hire you? Isn't Motrin a potential customer of yours? You offended your own potential customer. Do you think I would ever hire you? Why would I ever hire somebody who purposely criticizes others in an effort to build their own brand portfolio? If that is what social media and customer advocacy is all about, I don't want to have anything to do with it. I'd rather stick to my old fashioned business model, one that truly cares about customers, one that puts kids through college, gives men and women the money to make a living or to lift themselves from the lower class to the middle class, one that gives Ms. Wheldon the opportunty to have a different viewpoint than mine. Dolly, have you ever been in your distribution center? Have you ever watched 55 employees working hard at 2:00am on December 22, just so you can get a package delivered to your home on the 24th? I'd rather sink with those people than swim with those who have a platform to criticize the rest of us. I'd rather sink with those people than use Google as a weapon to destroy my competition. Maybe that will result in the death of my business. But at least I'll be able to sleep at night."

Greg Markham: "We learned that customers who visit our site from competing websites have conversion rates that are 27% greater than the average customer."

Chip Cayman: "We're going to have to end our panel discussion right there, with yet another amazing tidbit courtesy of Greg Markham at Boosky.com. Panelists, thank you for your time, I sincerely appreciate all of your points of view. Next up is the 11:05am session, titled 'Twenty-Nine Reasons Why E-Mail Marketing Will Still Be Relevant In 2029."

OMS: Compound Interest

2009-10-21T20:15:00.000-07:00

Please send me an e-mail message if you'd like a copy of the spreadsheet to follow along with.

Old-school direct marketers like to explore the concept of Lifetime Value.

In online marketing, however, the focus is generally on conversion rate, on getting customers to purchase something today, now!

So go ahead and obtain every single conversion you can. You can't argue that it generates sales today!

Now that you have a bunch of new customers, let's try something. Enter "0.00" in cells D6 - G6. Then enter "0.00" in cells B101 - B340. In this situation, you are acquiring new customers in year one, and then you're following them (and only them) for the next four years.

What did you learn?

Well, these customers generated $13.3 million in the year you acquired the customer.

But now take a look at the compound interest you earned ... $6.7 million in year two, $5.9 million in year three, $4.8 million in year four, and $3.9 million in year five.

You could roll this out into infinity if you wanted to.

In the subsequent four years, these customers generated $21.3 million.

Customers acquired in one year don't act like compound interest. But when you keep acquiring new customers, year after year after year, the result is like compound interest.

You think about your conversion activities differently when you realize that the customers you acquire today will spend 1.6 times as much over the next four years. By balancing short-term and long-term profit, you optimize your online business for long-term success.

This Week In Business: Integration

2009-10-20T20:15:00.002-07:00

There are two directions that the world is heading in.

The first direction is being taken by the customer. Twenty years ago, she was one of a million similar customers. Today, she is going in a million different directions, using search and mobile and traditional media and social media to do whatever she wants, whenever she wants.

The second direction is being taken by the vendor community. The vendor community is telling us that we need to take a million customers moving in a million different directions, and herd them in a brand-friendly direction with integrated data from all sources.

This message is coming from a lot of different disciplines, and the message is typically prescribed to us when a disruptive technology displaces an incumbant technology. Long-time blog readers know that the catalog industry went through this in the first half of the decade, as e-commerce displaced catalog marketing.

Now we see e-mail being displaced by social media, we see Web Analytics and Business Intelligence racing to the middle ground of multichannel database support and analytics, and we see online folks promoting mobile marketing as part of an integrated e-commerce strategy.

In 2015, e-commerce gurus will tell us how e-commerce is a vital part of a multichannel hologram marketing strategy. It's simply the way that humans deal with technological transformation.

The challenge, of course, is to go beyond the message.

We need to find a middle ground, one of data integration and customer understanding, one that does not necessarily support campaign integration that does not yield increased profit or increased annual retention rates.

Of course, knowledge about integrated data existed since the days of Snedecor and Cochrane, if not earlier. Statisticians have always used a measure called "R-Squared" to explain how much of the variability in a dataset is explained by different combinations of variables.

The graph at the top of this post is the result of a model that ranks customers from best to worst, based on integrated data across channels. The x-axis represents each variable added to the model, the y-axis represents the percentage of variability explained by the variables in the model. This model was built off of actual multi-channel customer data.

Notice that when you add the first piece of data, you make a huge leap. Then you add a second piece of data, and you make a smaller leap.

After adding the fifth piece of data (i.e. channel), you stop making significant improvements. In other words, you're just as well off with five pieces of customer information as you are with fifty pieces of customer information. This concept is known as "parsimony", or "less is better".

This is the piece of the puzzle that isn't always explained.

The reality is that, by having a few key data points from each channel, you get 98% of the benefit from 10% of the work.

Focus on getting a few key data points from each of your channels, and focus on how your organization can make decisions on a small number of customer attributes. You'll find it is a lot harder to get people to work together than it is to integrate data ... and you'll find that nobody has a solution for getting people to work together!

The New OMS Book: One Week Away!

2009-10-19T20:20:00.000-07:00

We're closing in on the release of my new book on OMS, aptly titled 'Online Marketing Simulations'!

This book is written for CEOs, CMOs, Online Marketing Directors, Online Marketing Managers, and Web Analytics Experts looking to understand how to optimize the long-term health of a business.

This book is paired with a companion spreadsheet (the url for the spreadsheet is listed in the book). The spreadsheet outlines an online business with the following advertising micro-channels:

Affiliates.
Offline Advertisements.
E-Mail Campaigns.
Social Media.
Print Ads.
Search.
No Attributed Source.

The spreadsheet also contains five merchandise divisions. Think of these as being similar to the tabs running across the top of an e-commerce website. In total, there are five customer grades (A, B, C, D, and F) with eight online advertising micro-channels (all channels + multiple channels) and six merchandising divisions (five + multiple merchandise divisions) yielding 240 segment combinations.

Most important, you will get to see how you can identify a "MVP", or "Most Valuable Path", the route that customers take from acquisition to loyalty. It is my opinion that identification of the "MVP" is more important to the long-term health of your business than is optimization of conversion rate.

The book walks you through an analysis of a business, helping you understand what steps you can take to make sure that, in five years, your business is growing at the rate you want for it to grow. If you are a CEO or CMO, you need to know how your actions impact the future of your business.

If you are an SPSS/SAS programmer, or you use another programming language, then you'll appreciate the 50+ pages of programming code in the appendix. With this information and the spreadsheet, you will be able to create your own Online Marketing Simulation.

I am self-publishing this book via Amazon, and am offering the book at a reasonable $19.95 price point. The book is clean and simple, no fancy colors or fonts or graphics, it simply offers a soup-to-nuts approach to conducting an Online Marketing Simulation.

I sincerely believe that Online Marketing Simulations should be part of any web analytics software package. After you purchase the book (or read the posts on this blog), if you feel the same way, let our web analytics software provider know that you want to see Online Marketing Simulations incorporated in their software offering.

OMS projects and Multichannel Forensics work will be the focus of my consulting work over the course of the next year --- these are things that CEOs are asking me to do for them. So give the book a chance when it becomes available next week!

OMS: You Shape The Direction Of Your Brand

2009-10-19T20:15:00.000-07:00

Please send me an e-mail message if you'd like for me to send you a copy of the OMS spreadsheet to follow along with our posts.

Do you ever feel like you don't make a difference?

Maybe you are the humble paid search analyst at your company, and your CEO wonders what you're doing with all of those confusing keywords.

Maybe you just had a breakthrough --- you've found one set of keywords that, coupled with outstanding merchandise, cause a breakthrough in conversion rate.

Can you prove your worth to your CEO?

Go to the OMS spreadsheet. Take a look at cells N15 - N27. These are the annual demand totals for each merchandise division five years from now.

Now try this. Go to cell B39, and instead of the value 3,599 that is in that cell, change the cell to "6,599". In other words, you are adding 3,000 new customers, over each of the next five years, to the business, because you did such a great job of finding a set of keywords that, coupled with outstanding merchandise, cause a breakthrough in conversion rate.

Now look at cells N15 - N27. How did the cells differ?

Well, you've increased the value of your business over time, haven't you? Look at merchandise divisions 14 and 21.

Division 14 Old Value = $8.9 million. New Value = $9.3 million.
Division 21 Old Value = $1.17 million. New Value = $1.23 million.

Each division experienced increases of more than 4%, just from a subtle change in keyword strategy across a few merchandise divisions. Also notice that all merchandise divisions generated some benefit, as customers spilled-over, during the course of five years, from divisions 14 and 21 into other divisions. In year five, the business is $800,000 bigger because of the efforts of one individual, making one or two subtle changes today.

Every online marketing professional is making small improvements, improvements that have long-term consequences. As an industry, we do a terrible job of demonstrating our value, on a long-term basis.

The CEO uses the Online Marketing Simulation environment to understand the value all employees bring to the table. Once we get to see that value, illustrated over time, we make different decisions in the short-term to capitalize on it. Online marketing is taken in a new direction, a more productive direction.