October 30, 2011

Dear Catalog CEOs: Trick or Treat?

Dear Catalog CEOs:

Tonight, you and your husband will hear the doorbell ring.  You open the door, and there, in front of you, are a pair of young children, dressed up like a pair of M&Ms or a vampire/wolf combo from Forks.  You'll hear the phrase "TRICK OR TREAT!!!!!"  And you'll drop a Snickers Bar or Twix Bar in their little bags.

You'll repeat this until you've exhausted your supply of treats, or until you've run out of children in your neighborhood.

How often will you trick a child?  How often will you provide a treat for a child?

As a catalog marketer, how many of you receive tricks, and how many of you receive treats?

We can look back, now, and realize that we've been tricked.

Last week, I read a few articles, articles with headlines that told a story we've all heard before.

  1. Mobile customers are 24% more valuable than average.
  2. The socially engaged customer drives a Net Promoter Score that is 88% higher than average.
Sound familiar?  Back in 2002-2003, we were inundated with this message ... "Multichannel Customers are worth 37% more than single-channel customers."

This is a trick, a trick perpetrated by folks looking to sell products, services, or page views.

How is this a trick?

You can replicate this situation within your own database.  Take a look at this simplistic example:

Here's the problem.  "Best" customers tend to do everything.  Therefore, when you run a simple query, a query not controlling for all effects, you find that presence of just about any indicator yields a more valuable customer than not having presence of the indicator.

Go have your database analyst or web analyst run this query for you, against any attribute you have in your database.  Any attribute.  Any.  You will come to the same realization in nine of ten instances.

Once you realize this, you realize that almost everything you've been taught about modern marketing is fundamentally wrong.  You've been "tricked".

If everything we read about being "multichannel" was accurate and data driven, wouldn't your business have grown at a breathtaking rate as you added new marketing channels? By 20% a year?  40% a year?  75% a year?

If everything we've read about social media was accurate and data driven, wouldn't 30% or 40% of our sales now be sourced from Facebook and Twitter?  And wouldn't you be having daily conversations with customers, who, following the conversation, immediately purchased products because "markets are conversations"?

Here's what happened.  In the past fifteen years, customer behavior, measured by repurchase rates, orders per buyer per year, and items per order, barely changed.  Go look at your own metrics!!  We added unimaginable ways to communicate with the customer ... the net sum of this, on a company-by-company basis, is something close to zero, in terms of sales.

We've been tricked.  

Are there any treats out there for us?  Certainly!

  1. The most successful clients I work with have found ways to increase customer loyalty (measured by annual repurchase rates) by up to 10%.  This is terribly hard work, and is most likely influenced by the second treat below.
  2. The most successful clients I work with increase customer loyalty, not by marketing, but rather, via merchandise productivity.  In other words, they work tirelessly to find merchandise that customers love, and then they feature more of that merchandise in their marketing activities, which drives up the productivity of marketing activities, which allows the business to reach more customers and grow faster.
  3. The most successful clients I work with tirelessly try to find low-cost ways to increase new customer acquisition.  In fact, when I look at the 10 year history of successful and unsuccessful clients, I almost always observe annual repurchase rates that move by +/- 10% vs. the ten year average for both successful and unsuccessful clients ... and I almost always observe that the successful companies acquire more customers today than ten years ago, and the cost per new customer is cheaper today than ten years ago.
I realize these treats aren't terribly tasty ... they're more like getting an apple for Halloween than a Twix Bar, but the apple provides better long-term health than the Twix Bar.  You, of course, thrive when you achieve long-term health ... right?

1 comment:

  1. "Here's the problem. "Best" customers tend to do everything."

    That quote is gold, and so overlooked by everyone. Great post Kevin.



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