Kevin Hilstrom Minethedata.com
If I were invited to give the keynote address at the Catalog Conference, now
called the ACCM, you would hear a presentation that sounded something like
this:
Good morning, everybody! Thank you for inviting me to share my views on the
multichannel marketing industry with you.
Let's start the discussion with a show of hands. How many of you enjoyed
receiving the old Sears catalog, or J.C. Penney catalog, back in the 1970s and
1980s?
Me too. My Mom shared the J.C. Penney with my siblings. I'd thumb through the
catalog, looking for a computerized chess game. Somewhere around page 594, I'd
find the game. I'd ask my parents to give this game to me as a Christmas
gift.
Even though we had a J.C. Penney store in my home town, the catalog
represented "the store" to me. I felt lucky to receive a catalog, as if I were
part of a secret club of people that got access to unique merchandise, delivered
to my home within four to six weeks. I mean, where else was I going to find a
computerized chess game in 1980?
My love for computerized games continued into the 1990s. I purchased a
computerized backgammon game from J&R Music World in 1993. Of course, the
world changed over the twelve years that passed. The J&R Music World catalog
was a lot smaller, with a "targeted" merchandise assortment. This targeted
catalog merchandise strategy drove the "big book" strategy of Sears and
Montgomery Wards into history.
What would you do today if you wanted to purchase a computerized chess game?
Google? The world is changing, isn't it?
1993 might have represented the final "Golden Age" of catalog marketing.
Computers allowed professionals to practice database marketing, a craft where
customers were matched-up with targeted merchandise offerings, greatly
increasing the productivity of each page circulated. Catalog marketers enjoyed a
near monopoly over the customer mailbox.
We decided how many catalogs the customer would receive. We rented names from
other catalog brands, we exchanged names with our closest competitors. Would
Zappos give away their most precious asset, their customer file, to competing
online shoe brands in exchange for access to the names and addresses of
customers shopping from the competition?
We practiced this strategy, in fact, we built our industry on the basis of
this strategy. This whole thing called "the catalog conference" was a convenient
excuse for all of us to get together to talk about our practices in renting and
exchanging outside lists. We'd have sixteen of us representing two companies and
four vendors in a cramped hotel room, sitting on beds and folding chairs,
talking about exchange balances. And at the end of the day, Direct Tech hosted a
killer party. All of that on the shoulders of the profit generated by the
customers we shared with each other.
We controlled everything, the customer had almost no control. If we wanted to
get a Lands' End catalog in the hands of a customer, we figured out how to do
that. And as long as one or two percent of the customers cared enough to
purchase from this intrusion, we could continue practicing our craft.
We didn't realize it, but we enjoyed a unique moment in time. Collectively,
we identified a universe of maybe 20,000,000 households who were willing to shop
via distance. The big companies did the hard work, the smaller catalog startups
leveraged all that hard work to grow themselves while adding incremental names
to the pool. Ultimately, we all shared the same 20,000,000 households. We
thought we were independent brands competing against each other. Instead, we
were a loose federation of collaborators, working together for the benefit of
all of us.
Today, Google manages the households that matter.
While many prior generations made catalog marketing possible, it was the Baby
Boomer generation who injected steroids into the concept. Baby Boomers managed
the businesses, Baby Boomers got the catalogs into our mailboxes, and Baby
Boomers purchased from these businesses.
Life was good.
And then this thing called the "internet" appeared.
At first, the internet was this funky thing we played with on a 9,600 baud
rate modem. We could send and receive e-mail, we could visit static web
pages.
I worked at Eddie Bauer in 1996. Our website, http://www.ebauer.com, was in
the embryonic stages of development. My Vice President would stop by the office
of our online marketing analyst, and rib him about whether we hit our forecast
of seven orders for the day.
Nobody mocked the online marketing analyst in 1999, when fifteen percent of
direct-to-consumer orders at Eddie Bauer came through the internet. Still,
catalogers felt that online marketers were "cannibalizing" the catalog business.
"If the catalog didn't exist, you wouldn't have a business" was a statement you
frequently heard. The internet staff benefited by having an existing order-entry
system, an existing call center, an existing distribution center, catalogs that
drove website orders, and existing in-house systems to manage the business.
For the next eight years, a battle ensued over who truly generated sales and
profit. The battle appeared to be meaningful. In reality, we made a mistake. We
took our eyes off of the customer for a decade, spending our time arguing
whether old-school marketing methods still worked or not.
Instead of learning how customer behavior was changing, we focused on
attributing orders back to the paper that theoretically drove the order. Our
industry invented a term, called "multichannel", to define the relationship
between advertising, customers, and channels. We focused on the attribution side
of the term "multichannel", instead of the ramifications of multichannel
customer behavior.
During the decade of multichannel attribution illustrated via matchback
algorithms, we lost our customer. The Baby Boomer responsible for the rampant
growth of the catalog industry in the 1980s and 1990s aged. This customer is
slowly being replaced with Gen-X individuals, customers who have different needs
and different shopping patterns. This generation uses technology in a different
way than do Baby Boomers. Even more profound are the differences in customer
behavior among Gen-Y, the children of Baby Boomers. If Gen-X embraced
e-commerce, then Gen-Y embraces social networking.
Both generations view the catalog in a different light than do the Baby
Boomer generation. A Baby Boomer might read a catalog a night, ordering online
after thumbing through the wares of a leading catalog brand. A Gen-Xer might use
the catalog for inspiration, or might throw the catalog away, opting for the
assistance of Google, searching for whatever pleases the customer. A Gen-Y
consumer might purchase merchandise on the basis of a good review from a peer on
Facebook. Of course, these are gross over-generalizations, meant to inspire
thought.
The cataloger ultimately markets to the Baby Boomer generation, noticing that
customer acquisition becomes more challenging as the Baby Boomer moves out of
her prime shopping years.
Two other issues are shaping customer behavior. In the past decade, customers
took control of the telephone via the "do-not-call" list. Customers are taking
control of the e-mail in-box via spam filters and e-mail opt-in practices. In
the next five years, customers will take control over the mailbox. Catalog
Choice simply represents the embryonic stage of this movement. Eventually, our
customer will tell us how often we get to market to her via catalogs, if at all.
We are not prepared for this fundamental shift in customer behavior. All
throughout history, we determined when the customer received something from us.
In the future, the customer will determine when she receives something from us,
if at all.
The final issue that is transforming cataloging is storytelling. Catalogs
have always been about telling stories. Think about the fanciful tales told in
the old J. Peterman catalog. When a cataloger has control over the customer
relationship, the cataloger is able to tell the story that the cataloger wants
to communicate.
A combination of e-commerce, e-mail, and search marketing ruined the ability
of the cataloger to tell a cohesive story. When a customer goes to your website,
you have no control over what the customer does. She can arrive via the home
page, she can arrive via a landing page. She can use the search function of your
site to shop. She can simultaneously use Google to compare prices on a similar
item across multiple brands. The cataloger is no longer the primary factor in a
purchase relationship with a customer. The cataloger is a spoke on a giant
ecosystem-based tire.
This hurts the cataloger in many ways. Stories are like a moat that protects
a catalog brand, causing the customer to cross-shop other items. When the
customer makes up her own story, a "mashup" of other brands found via search,
marketing, and word-of-mouth, she realizes that the cataloger may not offer the
lowest cost, the fastest or most inexpensive shipping, or the best quality.
The same forces damage the merchandising strategy of the cataloger. Any brand
can see what the cataloger offers, copy/improve it, source it in China for a
lower cost-per-unit, offer free shipping, and outperform the cataloger in paid
or natural search, stealing business from the cataloger. The online ecosystem
ultimately drives our merchandising strategy. If one item achieves good standing
in natural search, while another item fails to make an impact, then technology
is driving the performance of items offered. Regardless, our catalogs and the
cohesive stories told in our catalogs are not as relevant in the future unless
the internet/Google decides that we are relevant. We will be forced out of
business by low-cost competition, or we will achieve success by offering
high-gross-margin niche product that Google determines is highly relevant in the
niche it participates in.
What is also interesting is the fact that by avoiding these challenges, the
cataloger indirectly moves the customer base older and older. Numerous CEOs
confided in me that the average age of the customer purchasing from catalogs is
advancing at twice the rate of time. In other words, an average customer of 50
years old in 2003 is now an average customer of 60 years old in 2008. This is an
odd side-effect of technology. By avoiding the dynamics that are shaping the
internet, the cataloger partners with co-ops to find customers most likely to
respond to catalog marketing. The audience that remains loyal to catalog
marketing is the audience least likely to embrace technology. Co-op technology
helps in the short-term, but has the potential to move the catalog brand toward
a customer base that is unsustainable.
By now, what should be clear to you is that the catalog business model we
managed in 1993 no longer exists. The competitive advantages we enjoyed fifteen
years ago are gone. This doesn't mean we can't be successful. We can be very
successful. However, we will have to apply modern technology, a thorough
understanding of customer behavior, and an absolute attention to detail across
all online marketing strategies.
The cataloger of the future will gracefully manage catalog mailings,
providing twenty contacts a year for the customer who wants twenty contacts a
year, a universe that will continue to decrease in quantity. Over time, the
majority of customers will demand that they determine how many catalogs they
want to receive, if any. This will end the practice of using lists and co-ops to
manage customer acquisition. New customer acquisition will happen online. This
concept is a terrifying one for catalogers, one that cannot be avoided.
The cataloger of the future will reduce catalog advertising expense, but
won't pocket the savings. Instead, the money will be reinvested in faster
delivery options at a lower cost. Customers will demand that all
direct-to-consumer brands follow the lead of Zappos.
The cataloger of the future will be required to become very, very savvy at
online marketing. I'm not talking about executing paid search campaigns. I'm
talking about every aspect of online marketing, paid search, natural search,
affiliates, shopping comparison marketing, portal advertising and pay-per-click,
social networking, and techniques we cannot envision today. Countless brands
never mail a single catalog, yet run profitable direct-to-consumer businesses
using these techniques. Do a search for any product and see what I mean.
The cataloger of the future will manage a heterogeneous customer base, one
resistant to mass-mailings of catalogs or e-mail blasts. This will require an
attention to detail in online marketing expertise that does not exist today.
Vendors who rely upon the catalog ecosystem will need to adapt as well.
The biggest potential winner is the traditional list organization, somebody
like Millard or ALC. The future of cataloging won't be in renting or exchanging
lists. The future could be in identifying groups of individuals with common
interests. We might work with Millard to build/find a group on Facebook that
likes mens tools or rugs or scrapbooking, whatever is relevant to our business
model. The traditional list organization competes against algorithm-based
organizations like Abacus by
adding the "human" element --- linking people who have interests together for
the betterment of people, not brands. Catalog brands succeed as a side-benefit.
For those brands who want catalog-focused customers, co-ops will be there to
serve them.
If I were to poll the folks in this room about the biggest issues in
cataloging in 2008, three themes would emerge.
- The crippling effects of the 2007 USPS postage increase.- The recession of
2008.- The approach Catalog Choice uses to encourage catalogers to accept
unverified opt-out consumers.
Catalogers that survive the first two issues will face interesting long-term
issues, as outlined in this discussion. We survived the transition from big-book
to targeted catalogs. We survived the transition from targeted catalogs to
multichannel mailings that drive e-commerce sales. Our industry will survive the
transition to a self-service customer who calls upon us when s/he has a need, a
transition that is opposite of our established practice of calling upon a
customer when we have a need. Market forces require that we make this
transition.Multichannel Forensics: Understand how customers interact with
advertising, products, brands and channels. Contact me:
kevinh@minethatdata.com
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