Customers, Marketing, Technology The Impact of Technology on Catalog Marketing, and Thirty-Five Strategies That Will Imp

1. Customers, Marketing, Technology The Impact of Technology on Catalog Marketing, and Thirty-Five Strategies That Will Improve Company Profitability Tomorrow Kevin Hillstrom President, MineThatData

2. My Projects My projects focus on a concept called “Multichannel Forensics”, the study of how customers interact with different channels. I’ve analyzed customer interactions between channels for nearly four dozen brands in the last three years. Today, we’ll integrate the findings of my studies with current and future trends. Here we go!

3. Oh, Those Pundits! From time to time you hear the pundits say that “print is dead”. Just look at the newspaper industry for a veritable plethora of examples! Is print dead? As a mass marketing vehicle, maybe. As a niche marketing vehicle, probably not.

4. 1995. 2003. 2010 In 1995, print meant everything. The Internet was the wild west! In 2003, print was possibly the most important part of an integrated multi-channel business. In 2010, your website the most important part of an integrated multi-channel business. Social / Mobile are like the wild west! Print?

5. Customer Behavior Is Evolving • Customers are being pulled in different directions, away from Classic Direct Marketing: • Algorithms. They make decisions for us, pulling us to algorithmic preferences. • Mobile. A natural evolution … mainframe – desktop – laptop - mobile. • Social. Customer behavior evolves with every single Social Media innovation. • Media/Content. Bordering on infinite.

6. Technology Driven Change And within/across boxes, customers scatter in infinite directions … 40,000,000 Ning users across 1,000,000 networks, for example … a big audience, but only 40 users per network.

7. A Problem: Time and Media/Content Time is now a currency that competes with money. Who has time to interact with classic direct marketing when there are mystery eggs to be claimed in Farmville? Media/Content consume time, and actively compete with us for attention & money.

8. A Problem: Customer Acquisition New/existing businesses and infinite media/content choices compete for the resources of our prospect audience. This combination of competition, channels, and media/content drive down traditional customer acquisition productivity. In my opinion, this is the #1 challenge we face … how do we acquire customers?

9. Three Problems: No Clear Solution Problem #1: Customer acquisition via traditional methods is imploding slowly. Problem #2: Online customer acquisition isn’t growing very fast anymore, and is often coupled with lower-than-average future value. Problem #3: Mobile/Social simply “don’t work with my target customer”, as one Exec told me.

10. Opportunity: A Transition Plan Let’s look at thirty strategies that a direct marketing business can employ to save money, so we can transition to the future without breaking the bank. My Reason For Being: Save $$$ on classic direct marketing to existing customers, use $$$ money to test different strategies that may bring in new customers in other channels.

11. Strategy #1: Pages If you market via catalogs, start thinking about smaller page counts. Each additional page causes a reduction in circulation depth, because additional pages are less and less productive.

12. Strategy #2: Contacts If you market via catalogs, you have a choice. You could mail a monthly 128 page catalog, or you could mail a 64 page catalog ever-other-week. Contacts are becoming more productive than pages. Use the web as “your store”, use print to “feature the store”.

13. Strategy #3: Order Starters In modern marketing, the merchandise that is offered to the customer dictates interest. Strongly consider doing an “order starter” analysis. Identify the order that each item is entered when a customer purchases. Feature items in the first position in the first twenty pages of print campaigns, or feature them in e-mail marketing campaigns.

14. Strategy #4: Mail/Telephone Shoppers Customers who usually order via mail or the telephone are fundamentally different than are customers who shop other channels (it used to be the other way around, remember?). This is the customer audience that is most likely to be responsive to traditional direct marketing strategies. For the most part, you can market to these customers “like it’s 1999”!

15. Strategy #5: Online Via Direct Mktg Customers who purchase merchandise online after receiving direct mail (catalogs, postcards) are the classic “multi-channel” customer that our industry loves. Carefully test how many offers and the type of offer that causes this customer to purchase. In many cases, you can reduce the number of contacts to this audience, saving $$$.

16. Strategy #6: Online-Only Shoppers Customers who purchase exclusively online are often different than the core customers who shop via traditional direct marketing advertising channels. This audience is like the bank customer using an “ATM”, they are a “self-service” audience. This audience frequently warrants a significant reduction in direct marketing contacts.

17. Strategy #7: Rural Shoppers Customers who live in rural zip codes are usually responsive to traditional direct marketing Use zip code filters to minimize marketing expense to existing/new buyers.

18. Strategy #8: Know Your Organic % Everybody should know what percentage of your business will still exist if traditional direct marketing (mail-based) is discontinued within a segment of housefile buyers. This metric can be surprisingly high (above 55% for two businesses I analyzed this spring). When it is high, a dramatic reduction in mailings is warranted, causing increased profit!

19. The Organic % Is So Important!

20. Strategy #9: Mail / Holdout Tests Every business should have an active testing strategy, one where 10% of the active housefile does not receive catalogs or e-mail campaigns for at least three months at a time. These tests are analyzed across key customer segments, allowing you to calculate the organic percentage accurately! Hint: You are over-mailing your customers, costing you profit.

21. Strategy #10: Matchbacks Matchback analytics are 100% valid for understanding the impact of new customer acquisition. Matchback analytics frequently overstate housefile performance, causing traditional direct marketers to spend too much mailing to housefile customers. Be very leery of what your matchback analytics are telling you.

22. Strategy #11: Know E-Mail Productivity Almost every company I work with either significantly over-states or significantly understates e-mail marketing productivity. Make sure you know how e-mail productivity changes as you increase/decrease frequency. Measure “beyond the click”, using mail/holdout tests to measure true incremental value.

23. Strategy #12: Merchandise + E-Mail Segment your housefile list into groups of customers, based on merchandise preference. Develop an e-mail strategy with customized panels allowing variable merchandise presentation, or at least have multiple versions of an e-mail campaign that are targeted to customers with specific merchandise preferences --- upside = +20%.

24. Strategy #13: Search + Print Carefully evaluate the interaction between search marketing and print-based marketing. At some companies, search volume decreases when print-based marketing is reduced … and print-based volume decreases when search spend decreases. These two channels can interact with each other, they often depend upon each other to generate incremental sales.

25. Strategy #14: Annual Retention Rate Do not take your foot off of the customer acquisition gas pedal if you retain fewer than 40% of last year’s customers. You can work on loyalty-based program improvements if you currently retain more than 60% of last year’s customers. Make this one of your top five metrics to track.

26. Strategy #15: Business Models Do me a favor: Visit http://bubbleroom.se Business Model: No catalogs. Six product managers read 2,000 blogs a day. They identify trends, design product, and have it delivered from Indonesia/China in two weeks! 13,000 paid bloggers earn 8% of order if customer clicks through their blog, syndicated on the Bubbleroom website. 30% m/o/m growth rate.

27. Strategy #16: Merchandise Path Know the path that customers take as the customer moves from a first to second to third purchase. Often, customers evolve their purchase habits (i.e. best customers buy new products, new customers buy existing products) over time, allowing your to target your marketing strategies accordingly.

28. Strategy #17: Sales & Promotions Segment your file by customers who either buy a disproportionate amount of merchandise on sale, or buy more than half the time using a free shipping or %-off promotion. Test reduction of full-price merchandise offers to the sale / promo segment of your housefile. Try to minimize “file pollution” where possible.

29. Strategy #18: The iPad Own an iPad. Seriously. Go buy one, now. Has there ever been a device more tailor-made for a digital catalog? You’re flipping pages with your index finger, tapping an item you want and executing a one-click purchase, potentially without ever visiting a traditional website. The iPad can be a mobile mailbox.

30. Strategy #19: Indirect Buying If the last two orders a customer placed are not directly sourced to a direct mail activity, then consider testing a reduction in direct mail contacts to this customer. Be vigilant in identifying customers who are moving into new cells in our customer evolution chart.

31. Strategy #20: Marketing = Humans In every Multichannel Forensics project I’ve worked on, customers who have actual contact with a live human being have increased long-term value over self-serve online customers. While it might be considered “expensive”, I would do anything possible to make my business “warm” (i.e. human) instead of cold, templatized, and algorithmic.

32. Strategy #21: Awareness If there is a place for Social Media in traditional direct marketing, it is in the “awareness” phase of marketing. We need to craft strategies that communicate who we are and what we stand for, so when the customer is ready to finally consider a purchase, our businesses are top-of-mind with the customer. Beware: Classic ROI may be low.

33. Strategy #22: Content Traditional catalog brands were really good at creating content that led to a purchase. Strategy will evolve over the next few years as tablet-based devices could make catalog-style content more relevant in a digital format. Strongly consider experimenting with emerging platforms. Go where your customers go!

34. Strategy #23: Integrated Data It will become increasingly important to identify customers who are less and less likely to respond to traditional direct marketing. Integrated data helps make this possible. Every effort must be made to integrate clickstream data with offline purchases, mobile, and social. Test withholding traditional direct marketing to audiences that are increasingly “digital”.

35. Strategy #24: Map The Future Thoroughly understand how customers are likely to evolve over the next five years, and use this behavior to reduce marketing expense among segments (my most popular client project in 2010). Example: What happened to search+e-mail buyers in 2007, how did their 2008-2009 behavior evolve vs. a pure catalog buyer?

36. Strategy #25: Demographics Immediately overlay age information on your customer file. Measure differences in customer behavior between the 50+ audience, the 35-49 audience, and the 18-34 audience. Use this information to craft customer acquisition strategies.

37. Strategy #26: Take Risks Our knowledge base makes us unwilling to take risks. We were first movers in e-commerce. We are terribly slow to adopt mobile, social, rich media, and algorithmic opportunities. Save money by contacting existing buyers less, use that money as part of a “testing budget” for emerging technologies. Give Marketing a bigger role in the direction of your website.

38. Strategy #27: Seasonality So many of the businesses I analyze have a “seasonality component” … businesses who order once a month or once a quarter or once a year … or have customers who only buy during the Holiday season. Segment your customers, and save $$$ by not targeting those who only buy during particular “seasons”.

39. Strategy #28: Months 1-3 The analytics I perform strongly suggest that months one, two, and three are critically important in the development of a “new customer”. If there was ever a time for “human contact”, this is a really good time. For many businesses, half of all newbies who will ever buy again do so in this three month window.

40. Strategy #29: Merchandise Categories Too often, we focus our marketing efforts on “channels” (catalogs, e-mail, search, social, mobile). We should focus our efforts on merchandise categories. Customers who buy from multiple merchandise categories are often more valuable than customers who buy from multiple advertising channels.

41. Strategy #30: Small Numbers The mass audience, lack of competition, lack of information, cost structure, and amount of free time consumers enjoyed in the 1990s is not likely to return. Instead of renting 1,000,000 names from a co-op, our future includes 250,000 names from a co-op and 750,000 names from 750 different sources. We must make small numbers work.

42. Strategy #31: Filtering Existing customers will increasingly determine the communication strategy they want. Some will want catalogs and direct mail. Some will use search & e-mail & our websites. Some will use mobile & social & algorithms. Some will use the iPad. All will consume media. We will decide how profitable we want to be.

43. Strategy #32: Retail Shoppers Retail shoppers do not behave like Direct-Channel shoppers behave. Direct-Channel shoppers are willing to shop in retail stores. Retail shoppers are usually unlikely to buy merchandise online. This has big ramifications for the usability of your e-commerce website.

44. Strategy #33: Comparable Segment Want to really know how your business is performing? Pick a “comparable segment” of customers, and measure their performance, year-over-year, each month. Typical Comp Segment: Two orders last year, last purchase 0-3 months ago. Measure performance in subsequent month, compare with prior years. Measure channel shift, too!

45. Strategy #34: Clickstream Data If your systems allow you to do this, be sure to integrate online clickstream data with offline purchases and online purchases. Secret: Customers who buy twice a year visit your website 6-8 times a year! Secret: What the visitor looks at and where the visitor came from influences e-mail.

46. Strategy #35: Digital Profiles The days of “Recency / Frequency / Monetary” segmentation have passed us by. Complex businesses with multiple channels require a different style of segmentation. Combine channels, merchandise, clickstream data, and demographics to form what I call “Digital Profiles”. Hint: They’re actionable!

47. Cover The Board! Save money in housefile marketing, allocate it to the areas on the grid where your customers are most likely to reside.

48. Customer Acquisition In 2015? Think ahead, five years from now. How will you acquire new customers? Use the strategies outlined in this presentation to reduce marketing expense, then use your savings to test your way into the future. We can get to 2015, and we can innovate, too!

49. Questions? Kevin Hillstrom President, MineThatData Website: http://minethatdata.com Blog: http://blog.minethatdata.com Twitter: http://twitter.com/minethatdata E-Mail: kevinh@minethatdata.com Phone: 206-853-8278