Kevin Hillstrom: MineThatData

What Does The Plan Look Like When Proper Organic Percentages Are Applied?

If I have to hear one more professional lament the fact that Orvis doesn't mail catalogs anymore but Amazon does ... then suggesting that "Amazon is smarter" ... my goodness.

None of that matters. The only thing that matters is your customers, your marketing efforts, and the incremental effectiveness of your marketing efforts. That's it.

Here's what proper application of the "Organic Percentage" looks like. Below is a typical circulation plan (simplified by deciles instead of segments for illustrative purposes) via matchback analytics. Looks good on the surface (only look at the top portion of the table for now).

Every segment is profitable - you could absorb a 10% increase in ad costs and still be profitable. It's all good! Catalogs work.

Except they don't work for most customers.

You're one of the smart ones ... you execute mail/holdout tests. For you, 75% of the demand will happen anyway, 25% is "caused" by catalog marketing. Which leaves you with the bottom half of the table.

Look at that. There are ten deciles/segments there. How many are profitable? One (1). One!! Just the most loyal customers. Every other segment represents a marketing abomination.

In case you are wondering, this is where the arguments begin.

There is the group of professionals who simply do not believe the results. They are true believers in the craft. You cannot convince this audience of anything, even though 80% of the catalog pages circulated 20 years ago no longer exist (because they were terribly ineffective). You have to let these people marinate in their delusion.

There is a group of professionals who have to test 50 times ... they believe that the test results "are not representative". These people are stalling. They know the change that these results will lead to, and they don't want to deal with change. So they delay the inevitable.

There are a small group of professionals who believe the results, but realize their organization is unwilling to change. This audience largely left catalog marketing in the past twenty years, and are now thriving in ecommerce.

There are a small group of professionals who work in paper / printing / agencies. They CANNOT believe these results, because as I was told by a paper rep ... "it will take food off my dinner table, and I cannot allow that to happen". They lie to benefit their craft. They are not fundamentally different than politicians who lie to protect their congressional seat.

There are a small group of professionals who work at agencies AND they believe in the results and they try to do what is best for their clients. If the agency you work with is willing to execute mail/holdout tests and evaluate results via the bottom half of the table (above), hold on to that agency like your life depends upon it.

Then there are the companies who change. Like Nordstrom did back in 2005 when I worked there (they kept mailing branding-centric catalogs throughout, but the classic list-based catalog business model was discountinued). Like Orvis. Like several of my clients. Why are they changing? Because they run a p&l that looks like this.

These companies make a choice. They take the 17% demand hit, but save $360,000 in ad cost and increase profit by $213,000 (in this example). With the ad cost savings, they typically reinvest in digital marketing channels ... or they just become a smaller brand that is more profitable. Either way, they outperform those who don't evaluate their businesses in this manner.

Did you see what happened in the bottom half of the table, when you evaluate your circulation plan via mail/holdout tests?

Only the most loyal customers are profitable.

This is why you'll see brands with the GDP of Australia be able to mail catalogs ... they have hyper-loyal customers that can afford to be mailed even if little of the demand generated by the catalog is actually incremental.

This is why I argue that catalog marketing will still be a craft that can be applied to loyal customers or hyper-productive customers. The math will continue to work for a period of time.

But for everybody else?

It's over.
It's been over for a long time.
There's no reason to badger Orvis because they made what is in reality an easy, fact-based, profitable decision.

It's Forecast Season!

Somebody at your company sounded the alarm bells about November/December.

Is that person right? Are you going to be below plan/budget? Or is the professional paranoid?

It helps to have facts, doesn't it?

As I generally do each year, I'll accept five years of data through September 30. With that data, I'll tell you what your projections for November/December look like. It's Forecast Season!

Contact me right now (kevinh@minethatdata.com) and I'll project November/December for you at a low cost.

Content Creation

Here's the link.

I realize many of you are stymied by creating content for your customers. Some of you would say the video above is pointless, useless, and may have nominal ROI if any. Think of this as a triangle, with being "stymied" on one point, "pointless" on another, and doing something on the third point of the triangle.

How Will You Give New Items Exposure?

It's hard for the customer to know you have new merchandise unless you tell them you have new merchandise. You do that through print (for some of you), you do that through email marketing, you do that through your home page, you do that via social media.

Now think a bit about the evolution of search. Your search-centric customers already skew to existing items ... just perform the analysis yourself, it's easy to do and it is revealing as heck. Algorithms push customers to items that algorithms know about.

AI likes/needs to be "trained". How do you train an algorithm on an item that you won't offer yet for two more months?

Email marketing is going to become your most important new merchandise advertising platform. It will be one of the few places you have control over the message. Start your experiments today, learn as much as you can, and be ready for the change that is coming.

The Organic Percentage Over Time

When I left Lands' End in 1995, one of the challenges the analytically-focused person faced was the fact that some in Management did not believe that if you didn't mail a catalog 30% of the demand would still happen (from surrounding catalogs). This "fact" (measured via mail/holdout tests) meant that what was marginally profitable was, in fact, unprofitable. Nobody wants to be tied to something that is unprofitable. Consequently, facts were not accepted.

At the time I thought "these people just aren't smart enough to understand simple math". I was wrong. People are smart enough to understand facts, be it in marketing or politics. People choose to ignore facts for perfectly good reasons.

The organic percentage, at 30% in 1996, would become larger, creating ever-bigger problems.

By decade, the organic percentage grew.

1996: 30%.
2006: 50%.
2016: 65%.
2026: 80%.

In 2026, the only customers that can be profitably mailed are good or great customers. That's it.

And I get it ... some of you are reading this and you go back to your matchback analytics and you say "I'm good". You run a p&l on each segment and you believe you are mailing 36 month customers profitably. If you believe this, execute the following experiment.

Assume your organic percentage isn't 80%, assume it is just 50%. Pretend like it is 2006.
Run a p&l for each segment assuming your organic percentage is an old-school 50%.
What does the analysis tell you?

It tells you an inconvenient truth.

If you do what the analysis says, your company will be more profitable. Much more profitable.
If you do what the analysis says, you will cost your company top-line sales/revenue/demand, and you have forces within your company who will never let you do that.

This is why so many catalog brands ultimately went bankrupt. They couldn't let the top-line contract, so they just kept doing what they were doing until unprofitable became "too unprofitable" while customer response also contracted.

When the AI bubble pops (and it most assuredly will pop), new ecommerce models fueled by what AI is supposed to become will emerge. Print will be forced to be leveraged only by brands with the GDP of Bolivia or will be a tactic to leverage with best customers with high iROAS. It will not be a channel to center an entire business around (and honestly, it hasn't been for 20 years). Also - the same forces that came for catalog marketing will come for old-school ecommerce in a few years. It's how capitalism works.