PRESIDENT'S CORNER For years, when I first started my own business, I did not have a budget. I had the cigar box approach to finance—I put money into the box and when it was gone I stopped spending. While this approach was surprisingly effective at controlling expenses, at some point the business grew to the point that I needed to predict income, expenses, and a reasonable outcome. The budget became my roadmap to guide me through the following year to ensure organizational stability, a reasonable profit, and the ability to sleep at night. When we begin work with many of our clients, I am not really surprised that they are still working with a cigar box approach. One of our first tasks is to not only get a budget into place, but to address issues in the financial statement to increase their utility in managing the business. Often, even those clients that create and manage to an annual budget do not have a long-term, multi-year budget. Many years ago I developed a five-year planning tool which was basically five years of annual budgets stacked on top of one another with many tables of variables that allowed one to change assumptions. The five-year budget model has been used successfully by many of our clients. If you would like to move beyond just a one-year budget and develop a true five-year plan and budget, read on...FEATURE ARTICLE CASE STUDY CIRCULATION TIP CREATIVE TIP multichannel TIP CLIENT HIGHLIGHT—THE REPUBLIC OF TEA EMPLOYEE SPOTLIGHT—TOM BLAKE AFFILIATE FOCUS—COGNITIVEDATA, INC.
PRESIDENT'S CORNER Not only is fall the busiest sales season of the year for many of us, it is time to do one of our most disliked but important tasks—budgets. This week I am slaving away on LENSER’s budget for next year and, like most of you, agonizing over what I would like to spend while contending with the reality of income. For years, when I first started my own business, I did not have a budget. I had the cigar box approach to finance—I put money into the box and when it was gone I stopped spending. While this approach was surprisingly effective at controlling expenses, at some point the business grew to the point that I needed to predict income, expenses, and a reasonable outcome. The budget became my roadmap to guide me through the following year to ensure organizational stability, a reasonable profit, and the ability to sleep at night. When we begin work with many of our clients, I am not really surprised that they are still working with a cigar box approach. One of our first tasks is to not only get a budget into place, but to address issues in the financial statement to increase their utility in managing the business. Sometimes the chart of accounts does not allow visibility to a correct product margin and does not isolate administrative, marketing, and operational expenses. As with a budget, a financial statement can be an important tool in determining the financial formula for the business, what is “out of whack,” and how the business performs relative to other like businesses. Often, even those clients that create and manage to an annual budget do not have a long-term, multi-year budget. Many years ago, I developed a five-year planning tool which was basically five years of annual budgets stacked on top of one another with many tables of variables that allowed one to change assumptions. This permitted me to modify circulation quantities, response rates, and margins and quickly see the impact roll through all five years. Staffing and expense levels changed automatically to accommodate the growth and profits, and cash flow was predicted. The result was a five-year road map of where the business was going and the resources that would be required to get there. The five-year budget model has been used by many of our clients who have successfully searched for investment capital and several who have sold their business. In fact, Geoff Wolf, then a client and now a LENSER Partner, used the budget model to help sell Back in the Saddle, a company he founded, to the Potpourri Group. For our retained clients, each year our marketing managers prepare a projection of sales and marketing expense for the following year. This can be the cornerstone of your annual budget for 2008. Our partners are happy to provide you advice and assistance on both process and form for the balance of your 2008 budget. If you would like to move beyond just a one-year budget and develop a true five-year plan and budget, our partners would be pleased to discuss such a project. Our analytics department has completed a five-year model for two clients in just the past two months and is ready move forward with new projects.FEATURE ARTICLE Traditionally, most marketing relied heavily on intuition because it was difficult to get reliable metrics of consumer response. Along came catalog marketing with much more reliable measurement of response using keycodes—all we had to do was collect codes each time an order was placed and—voilà!—we knew what worked and what didn’t. Even with the added pressure to generate short-term profits, the catalog business shined in its ability to provide measurable results that were predictive of future behavior. And, with low postage and paper costs, we could prospect aggressively knowing that our business would grow. We catalogers felt fortunate compared to our other marketing counterparts! Trends and Change Consumer Behavior. Consumer shopping and purchasing behavior has changed significantly and continues to change as mainstream consumers get more comfortable with electronic transactions and less fearful of security issues. The internet is old news, but consumer behavior is still somewhere to the right of center in the adoption curve. Virtually all major retailers at least support some level of shopping on the internet, and many allow consumers to check inventory levels before going to their local store. This is continuing to change as more adopt these practices. We are at a point where technology laggards are now using the internet for shopping and, in some cases, even purchasing there. So more and more consumers use multiple channels to get pre-purchase information and, at a slower rate, more purchase using multiple channels. Tip: Don’t assume that behavior has stopped changing! It can and will continue to evolve. While this trend gives merchants many more ways to reach consumers, it infinitely complicates the job of understanding the value and ROI of each individual marketing vehicle. Where we once had reasonably accurate measurement of catalog response, we now have to rely on using several data sources and a lot of intuition to interpret the results. Catalog Costs. To make matters more challenging, the cost of producing and mailing catalogs has increased significantly and will continue to do so, raising the needed response to mailings to the point where developing acquisition campaigns is much, much more difficult than before. This has put tremendous pressure on the measurement and analysis function because small errors in measurement create huge differences in acquisition and retention campaign planning. As a result of multichannel “blurring” and the lack of perfect metrics, multiple measurement techniques, none of which are perfect, have to be used to understand catalog demand generation. Keycode collection in call centers remains the best method to measure relative performance of one catalog compared to another. But as little as 30% of response to mailings comes through call centers. In order to measure catalog performance against other media and vehicles, matchback analyses are used. While matchbacks promise many things, they are really only approximations of response dependent on rules that tend to bias assignment of demand. For example, matchbacks have to use fixed dates while we all know that mail delivery covers a span of days. Tip: Don’t abandon call center collection of keycodes. The Response to Trends and Change Excellent data and analytical tools are a requirement to play, and are no longer just a differentiator. The modern marketer has to have great data collection and reporting in order to understand consumer behavior. Systems need to be capable of both traditional source code and matchback reporting, and ad hoc queries used to identify trends of groups of consumers. A business cannot remain competitive unless it has the basics completely covered—that is the price of admission. Flexibility and intuition play a much higher role than for traditional catalog marketing. Profits and growth will come from leveraging data in extraordinary and creative ways. Because consumer behavior is infinitely more complex, the job of understanding what is happening and developing programs to leverage trends is much more reliant on creative thinking backed by ad hoc data analysis and intuition. Decisions have to be made with less than complete data because it is not possible to accurately measure all of the factors that influence consumer buying behavior. Tip: While intuition is important, it is essential that you have analytical support. Being able to mine your buyer and transaction data is not really an option anymore. Targeting smaller segments will consume more of the modern marketer’s time. With excellent systems handling the basics of data collection and housefile management and segmentation, more time can be shifted to micro-analyzing behavior using a competent reporting tool that can drill through a marketing database. Competitive Pressures In addition, the internet has lowered the barriers to entry so that in every category there are dozens if not hundreds of small shippers competing on the fringes. For every fly-by-night shipper that closes due to poor management practices, there seems to be another ready to join the fray. The Response to Competitive Pressures The greatest growth opportunity will come from extremely well-targeted marketing. While the promise of true one-to-one marketing has rarely been fulfilled with adequate return on investment and effort expended, one-to-group marketing holds the promise to reap significant future benefits. With great analytical resources, some intuition, and moderate effort, populations of consumers with similar wants and needs can be identified within a business’ target universe. By leveraging a marketing database and examining it for patterns in purchasing behavior and preferences, the modern marketer can significantly increase the relevancy of a message to the target audience. Even when mailing catalogs, identification of specific target messages or even cover changes that increase the relevancy of a presentation to its target audience will increase probability of success. Clearly, email campaigns can be carefully targeted and most of the cost here is effort. A recent example that exploits target marketing is in the testing that we are doing with several clients. Catalogs are inkjetted with website landing page URLs that are unique for each recipient. When the recipient goes to their specific URL, they are greeted with a personalized message and, conceivably, offers, or products that target them specifically or as a group of similar buyers. Initial results are very promising and the potential ROI is great! Further segmentation of housefiles beyond traditional RFM by product category or other attributes holds the promise of increasing the ROI of contacts/mailings and creating opportunities to more closely target messages and offers to specific audiences. From an effort perspective, the modern multichannel marketer will be seen spending far more time diving into the data looking for patterns and trends in an effort to deliver better-targeted messages. Tip: The marketer who learns how to discover the preferences of consumers, identify the associated trends, and develop targeted messages, will win. The Greening of Consumerism This reduction in tolerance is growing. Even Wal-Mart is emphasizing “green” in its marketing and a few of its practices—and if that isn’t mainstream, I don’t know what is! Response to the Greening of Consumerism For example, Catalog Choice, a presenter at the LENSER Summit, offers a service where merchants can get the names of consumers that have indicated they don’t want to receive that specific catalog. What makes Catalog Choice unique is that there is no cost to the consumer or the merchant to participate. Understandably, the presence of this type of service makes catalog mailers nervous because of the potential impact that consumer opt-outs could have on their prospecting and customer retention efforts. Regardless of what position one takes on environmentalism, it makes sense to (a) recognize and leverage macro trends in consumer behavior, (b) respect consumer preferences, and (c) reduce mailing lists by removing non- or poorly-responding names. Being proactive is the best defense against subjecting mailing to potentially devastating regulation. Tip: Ignoring this “green” trend will not make it go away. Conclusion
CASE STUDY Often contemplated and occasionally executed, testing buyers for what I call profit fatigue is not something we recommend in every season. But once every several years as a validation of current practices, a small test can be informative. This is particularly true since current practices have a tendency to evolve in increments from year to year. We recently set up a test with one of our clients to determine if buyers could generate similar profits with fewer contacts within a season. In this mailer’s case, our control strategy is to mail the strongest segments up to 5 times in season. We isolated a small test group to strike a balance between readability and financial risk and mailed them in 3 out of the 5 possible contacts. Key numbers in the results below have been indexed against the control (Control Index = 100).
These results tell us that while the smaller mailing quantity to the test group was more efficient— driving a 16% higher dollar per book—it comes at the expense of profitable sales. After factoring in Cost of Goods Sold and Marketing Expense, the control mailing strategy drove a 26% increase in contribution. For your tightly managed business, these are, quite simply, dollars you can’t live without. Moreover, this analysis only focuses on contribution to profit. We also know that the control strategy is driving incremental orders vital to maintaining stable growth of the 12-month buyer count. With these additional orders, one-time buyers convert to two-time buyers, two-time buyers to three-time and so on. For years to come, the productivity of this company’s buyer file will be enhanced by their highly optimized contact strategy. Testing with detailed and disciplined data analysis helped us identify that point of profit fatigue, and we then craft marketing our strategies accordingly.CIRCULATION TIP Giftees are obviously the recipients of gifts from your buyers. Ship-tos should be defined as simply a different shipping address from the bill-to address, which is normally the main record. Some databases split out the two, but if you can’t determine which is which from the system, you can have your IT department split the ship-tos into two groups: 1) ship-to records with same name as the bill-to (these would be true ship-tos) and 2) ship-to records with a different name from the bill-to (assumed to be giftees in most cases). I’ve heard several comments from mailers to the effect that ship-tos (those with the same name as the bill-to) aren’t worth mailing because they are already receiving a catalog at their bill-to address. In essence, it’s a duplicate catalog. However, the reason for the two addresses may be different in many cases, and is invisible to us—one buyer on a gift mailer’s file may ship gifts to the hotel the whole family is staying at in Aspen for Christmas. Another may be buying furniture for a second home. Yet another may be buying gifts for clients and using a home billing address, but a work address for shipping. In addition, many city dwellers have their purchases shipped to their work address for better deliverability and tracking. In one mailer’s recent test of ship-tos vs. giftees (determined in this fashion), we found a clear winner in the ship-tos. We surmised that ship-tos (with same name) are buyers, so therefore their response rates will be higher. Giftees are marginally better than a prospect name—they ought to be familiar with your brand and the quality of your merchandise from the gift they received, but perhaps they’ve forgotten it already. Or worse, the buyer chose badly and they’ve already re-gifted the item! Through testing, you can determine how deeply to mail into the ship-tos and giftees just as you do with other parts of your housefile. You may find it necessary to optimize some of the older ones, but remember to put them through the merge first to identify the multi-buyers. The more variables you can test, the smarter you will mail!CREATIVE TIP “Sticky,” newly-coined as a web term, means you provide so many reasons for the customer to stay that they can’t leave without seeing or reading that ‘one more cool thing’ you have on the website. Some sites are a natural for “stickiness.” Williams-Sonoma provides recipes that lure in the curious and get them choosing among recipes and planning meals. And of course while they do, they discover that there is one more cooking implement or condiment that they simply must purchase while they’re on the website. Others are not so natural. It may be difficult to imagine a technical site being sticky, but telling stories of problems solved and providing Question and Answer segments—and doing a good job telling the customer how to find them—is a good way to become more sticky. One of my favorite ecommerce sites, Despair.com, has created a little game that makes their site not only sticky, but viral, too. For those not familiar with Despair.com, check out this website of tongue-in-cheek and broad satirical humorous takeoffs on the traditional ‘inspiration’ posters and other gifts. Anyone who has ever rolled their eyes at one of these really must shop at Despair.com immediately! The game they’ve set up allows you to create your very own Despair poster or flyer. I couldn’t resist doing one myself when I saw it, and they then encourage you to email it to your friends. What a hoot! Opportunities abound. A spa ecommerce site could well enjoy stickiness and added sales if they’d provide instructions on how to keep a spa clean, rather than just selling cleaning products. Those instructions can include the products needed to keep it sparkling clean, and this information is probably not as obvious as they think. Business-to-business sites are also a natural for the added-value articles that it takes to make their website sticky. Planning stations for building a system of hardware or software is a perfect way to utilize the power of the web to create a sticky place that brings your customers back. One of the first really sticky websites in the automotive industry was American Isuzu, who used our advice to create the world’s first “build your own vehicle” feature. When a customer was done building—picking and choosing through products and features for their custom vehicle— they could order from the web and have it delivered ready and perfect for a test drive at the local dealership. Imagine the conversion rate to that test drive—outrageous! These things are all under the category we refer to as Added-Value. Those of you who attended our Added-Value workshop at the LENSER Summit had a chance to brainstorm with others on how to develop your own. If you’d like a copy of our worksheet, email at LENSER for an electronic copy, and see how it inspires you to make your own site more sticky—and responsive.multichannel TIP Ah, the good ol’ days. Well, as Thomas Wolfe wrote, “You can never go home again.” It’s 2007 now. Seinfeld plays in syndication 6 times a night. The U.S. dollar buys you a piece of gum in France. And, of course, catalogers aren’t “catalogers” anymore—they’re “multichannel retailers,” and few marketing decisions, if any, are made exclusively from a review of raw response data. We all know the culprit—it’s our inability to collect catalog keycodes on our e-commerce sites. Customers who were partially—or even fully—encouraged to place a web order after, or during, a review of our catalog simply won't cough up the information, no matter what reasonable incentive or prompting we provide. A matchback process begins to answer the question that is left generally unresolved. But, sometimes, as is the case when an order can reasonably be allocated to more than one contact or channel, it can raise more questions than it answers. (Don’t even get me started on the term “fractional allocation”—otherwise, this “tip” may become a full-blown article.) So, I’ve highlighted what seems to be a universal dilemma—and here are some concrete tips for how to ease your marketing manager’s pain: 1. Just because it is difficult to collect keycode information online, it does not mean you should give up collecting keycodes when orders come in via phone, mail or fax. To the contrary—this data is like the supply of inexpensively extracted, light sweet crude oil. It’s the database marketing equivalent to a cheap, non-renewable natural resource. If you have it, keep on pumping it—and develop nuclear weapons to protect your access to it, if you must. 2. Convince your customers to provide the data you need without asking for a keycode at all. How, you ask? Include a unique SKU prefix to each product displayed in each catalog you deliver. “My systems,” you retort, “don’t make this an easy lock-and-load process, and my layout and design team couldn’t possibly make such across-the-board changes to each and every catalog.” Well, for starters, it might be time for you to look at more robust inventory management systems. In response to the creative department nay saying, challenge each associate to research how other catalogers are implementing such procedures. It won’t be too long before they’ve built an even better mousetrap that answers a couple more questions the Executive Team hadn’t even thought to ask. 3. Make your e-commerce engine perform the heavy lifting. Let’s talk about worst-case scenarios for a moment. Actually, what I’m about to predict is a reality for many companies who began as internet pure-plays and of late, have ventured into the catalog / print advertising domain. 90%—no, let’s be bold and go the full 100%—of your company’s orders come in via the web without keycodes, other than a generic WEB code. “The horror, the horror!” If your marketing manager utters this phrase from her heart of darkness, allay her fears by reminding her of where “next generation” e-commerce platforms are heading. Full contact histories will be accessible in the background—much like finder files are utilized today in some order entry systems. E-mails, catalog mailings, even customer service representative contacts, will all be there. The moment a customer enters his or her billing and shipping address information and confirms the order, an instantaneous matchback will occur. If the system is really snazzy, it may even standardize the address entered by the customer, allowing for higher match rates—a brave new world, I know. The end result, of course, is a calm, confident and informed marketing manager. If your e-commerce systems developer is not already beta testing these functions, it might be time for you to look for a new e-commerce engine. Yes, indeed—the times, they are a-changin’. Who knows? Maybe in 2017 Seinfeld will be a virtual world gaming option; the dollar will no longer be fiat currency having been replaced by a new precious metals standard based on uranium; and multichannel retailers will extract campaign results biometrically.CLIENT HIGHLIGHT—THE REPUBLIC OF TEA The essence of the business Mr. Rubin created is summed up perfectly as written in an article published by Business Week in 2006: “He took the fledgling 22-month-old company, embraced its socially progressive mission, and created a distinctive and innovative brand identity. The company's cultural brand is based on the whimsical Republic of Tea—a kind of metaphorical place of peace and tranquility which consumers will want to visit again and again” Many companies create a mission, but again and again we see that it’s rarely followed. This is not the case with The Republic of Tea, whose ongoing mission is to seek out and procure only the most exquisite teas in the world and make them accessible to people everywhere. True to their mission, an expression of this can be seen by a message directly from The Minister of Tea: “When we set out to form our small Republic, our not-so-covert mission was to create a Tea Revolution. Our purpose is to enrich people's lives through the experience of premium tea and the Sip by Sip Rather Than Gulp by Gulp life—a life of health, balance and well-being. From the beginning, tea has been a drink that is shared with others. Around the world, at high tea in Devonshire and age-old ceremonies in Japan, tea is brewed and taken together with friends and family in rituals of hospitality and nourishment for both body and soul. Here at our e-Embassy, you'll find many ways to get to know tea anew, through a selection that will educate, inspire and communicate the quality, benefits, values and lifestyle that is The Republic of Tea.” LENSER joined their revolution in 2003 and witnessed firsthand their unwavering commitment to this mission. It’s been a challenging experience, since business decisions often conflict with those of their vision. For instance, it would be less expensive to print their slim-jim style catalogue on a virgin paper stock, rather than the more expensive Earth-friendly recycled paper. It would be less expensive to change some vendors, but the commitments to relationships that have been created are far more valuable than saving a few dollars. Social consciousness is paramount in the existence of this company. As a socially responsible business, The Republic of Tea is dedicated to sharing its prosperity by developing products to support organizations that make a difference. Not only do they create an Earth-friendly product and strive to enrich their citizen’s lives, they give back to the community. They have partnered with the Susan G. Komen for the Cure by creating Sip for the Cure which is a line of green teas they offer with a portion of the sales is given back for research to eradicate breast cancer. They have also partnered with the Prostate Cancer Foundation with the creation of their Blueberry Green Tea. As of November of 2007, they have already contributed $580,000 and $86,000 to each foundation, respectively. The Republic of Tea also strives to enrich the lives of their ministers and ambassadors. Their home office located in Novato, CA was designed by a feng shui master to harmonize the working environment. Each year the company sends a team (20-30 employees) to a tea growing region for a 10-day education in the fields. Japan was the destination this year and Yunnan Province in China and Taiwan is on the docket for 2008. The Republic of Tea’s offering can be found online at www.republicoftea.com, through their monthly catalogue offering or at any one of 20,000 restaurants and specialty retail “embassies” such as Whole Foods and Cost Plus World Market.EMPLOYEE SPOTLIGHT—TOM BLAKE Since the LL Bean days, Tom has worked at other well-known companies such as Lillian Vernon, Pet Edge and TravelSmith, growing his skills and contributing to their success. Tom wasn’t looking for a change, but it was apparent after a colleague recommended him that LENSER needed to pursue him. Michelle Houston, Vice President at LENSER notes, “Tom brings with him a wealth of experience with large multichannel companies, so his experience was vital to allow us to expand our client services. And with him, we get an exceptional individual that fits our company’s core values.” After working for a handful of medium and very large companies, Tom was looking for a smaller company in hopes of growing in other areas of the marketing. “Larger companies are often more of a silo environment where you specialize in a few areas, yet I wanted to break out of the circulation role and have chance to work with a broader range of what marketers do such as multichannel integration and branding.” So far the results have met with his approval as he mentions, “Working with so many people from different backgrounds but with a common goal has been an extremely educational experience. At any given time I have 15 marketing professionals in the room that I can bounce ideas off, and the variety of clients we collectively represent makes the experience that much more exciting. Every client is unique and the opportunity to get to know a new business and find out how we can make an impact is not only rewarding but very challenging. It keeps us all on our toes and makes for an environment that I like to be in.” Outside of work, Tom is another LENSER triathlete, “I've been a cycling fanatic for years and when my wife and I moved to California we joined a local triathlon club to meet other athletic people and thought it would be a fun challenge. I got hooked and love the variety as well as the challenge of trying to master all three sports. There is always an area that you can improve in or that get's neglected so the training never gets boring for me.” Aside from this, Tom continues to love snowboarding, cross country skiing and hiking with his wife and dog. To learn more about Tom, please visit his bio.AFFILIATE FOCUS—COGNITIVEDATA, INC. “We do one thing and we do it extraordinarily well. We are passionate about the quality of your data. The list hygiene problem has accelerated because today’s consumers are more fluid in the identities they use and move more frequently than ever before,” Ford explains. “We process 4 to 5 billion records a year, so we see lots of consumer data and are able to recognize the trends and patterns of error that is not being corrected by normal data quality methods such as using NCOA and address standardization,” Ford explains. “None of the traditional hygiene methods were designed to follow that person’s new first and last name changes and new address. We have never had a more mobile populace. The population densities are changing through urbanization. 120,000 people move every day. The problem is much larger than most people think. “That’s why we developed IntelliDRESS®, our flagship data quality solution. It is powered by the most advanced data matching algorithms available in the Database CRM sphere. No single algorithm can efficiently and effectively power a matching technology due to the multiple culprits of customer identity and data quality error—call center, written forms, keyboard entry. Our process incorporates several advanced database engineering matching algorithms, overlaying the ‘best of breed’ matching concepts in order to bring visibility to several distinct patterns of repetitious error. Each of these records is dynamically compared to corroborated consumer data sources, allowing for the remediation of the error and recognition of the true identity of the customer,” waxes Ford. Using IntelliDRESS translates directly to bottom line profits. A typical mail file contains 85% accurate records, 10% incorrect, but correctable records, and 5% impaired and un-repairable records. This advanced hygiene processing repairs the incorrect records (wrong address), improves the marginal records (apt # missing), and proactively identifies the undeliverable records for suppression and replacement with unique deliverable records. When this occurs, the overall mail campaign is maximized, providing a 4% to 8% increase in sales for the same marketing promotion cost. The gains are achieved by reaching the “Branded Buyer”, by replacing low performing circulation with higher performing circulation, and by reducing postage cost and waste in the mail stream. “We are always preaching to our clients about address integrity and the importance of clean, updated address when mailing,” says John Lenser, President of LENSER. “Using just NCOA doesn’t cut it anymore, so when we first saw what CognitiveDATA’s advanced address hygiene product, IntelliDRESS® could do, we jumped on the bandwagon and have encouraged out clients to do the same. Address hygiene is more critical for success today than ever before and LENSER staff routinely use this advanced address hygiene tool as part of list hygiene processing for our retained clients.” As we continue to strengthen our breadth of services, LENSER has identified and carefully screened key services to support its clients, representing the best in their areas of expertise. As part of the LENSER promise, each of these companies will keep its fees competitive and “always go the extra mile” for LENSER clients. We have successfully partnered with CognitiveDATA to our clients’ direct benefit. To get in touch with Rod Ford at CognitiveDATA or any of our other affiliates, please contact Michele Salmon at 415-446-2511 or email at LENSER.NEWS BRIEF
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