Retention and Relationships

It’s pretty clear that this holiday will be brutal for some retailers and great for consumers.  Merchants are going into this holiday season much better prepared than in 2008, when most assortments and marketing had already been planned and placed when the Lehman Brothers bankruptcy on September 15, 2008 crippled the banking system and the economy seized up in response.

What are they doing?  From what I’ve seen, I’d characterize the changes in three categories:

1)      Leaner inventories – The bulking up that normally precedes December appears to be far more muted.  Fashion items are coming in lighter, with companies ready to fall back on basics in the last weeks before Christmas if necessary.  10/25 shipments are where most Black Friday goods are shipped, so we’ll really see what inventories are like in another week or so.

2)      Earlier promotions – Last weekend looked a lot like a December weekend in terms of promotions and sales.  It looks like everyone is on the same page and ramping up the noise level early to tap into holiday budgets even farther in advance.

3)      Lower risk tolerance – This is more subtle, and shows up in many places.  From what I’ve seen, it looks like trusted brands, proven categories, and quantifiable marketing are all in vogue.  Expenditures need immediate return these days, since its almost impossible to take on debt to finance long term initiatives.  There is a little risk-taking at the margin (just enough to add a splashy item or two to advertising), but almost everyone appears to be hunkering down with their safest bets and preserving cash.

As we go into a second weak holiday, it’s likely there are a lot of companies that have been slowly burning through cash that may be in dire straits come January.  With the debt markets essentially closed to small and mid-size businesses, there may not be enough lifelines to keep everyone afloat through 2010.

In an ideal world consumer confidence comes back enough to keep the worthy players going, the worst locations get shut down and converted to housing (infill is good – more density around the remaining locations and less rural land turned into subdivisions), and the debt market finally loosens enough to let CFOs do their jobs.

My latest at VentureBeat’s Entrepreneur Corner.

This was an interesting article, primarily since it was very focused on a specific task – generating a second sale.  While repeat visits often happen naturally, nudging customers to return is often necessary.  The second purchase is incredibly important, since it identifies the customer as someone with the potential for a long term relationship.  Additional investment in the relationship will have a far higher likelihood of paying off with these customers.

If there’s one writer I never tire of, its Seth Godin.  Yesterday’s post on Brands That Matter was a perfect case in point.  Seth’s been banging on the “be different” drum for a long, long time.  But judging from most marketing today, he needs to keep pounding on the idea.  He’s still making the case for brands to stand for something, to make sure the customer experience is consistent with the brand identity, and to continue to come up with ways to stay fresh.  I’d argue that resource constraints often get in the way, but deep down I know that’s no excuse.

On that note, today’s post on Not So Good At Math shows the other side of the coin – that many marketers aren’t necessarily strong mathematicians.  That begs the question – if they aren’t good at creating interesting and distinctive brand identity, and aren’t good at generating insights from underlying data, what are they doing in marketing to begin with?

Pandora Radio logo

I love Pandora.  Pandora rules.  I wish everything was like Pandora.  I don’t really have to think or do much, and an incredibly accurate stream of stuff I want to hear just appears like magic.  I can tweak it to get it dialed in to my tastes.  And I now buy MUCH more music than I used to, discovering new music and buying on Amazon so Pandora gets a little affiliate revenue.

The closest we see to this ideal today is Amazon and a few other online retailers.  Borders appears to be using my purchases (finally!) to tweak the email they send me, which is great.

This is the next frontier for retailers and manufacturers.  A whole generation has had their priorities reoriented, much as the Great Depression did 70 years ago.  Consumers will think a bit more before buying and will be much less willing to use credit to finance their lifestyle.  So selling will need to move to a more relevant, customer-specific mindset if a retailer wants to succeed over the long term.

There are already many companies focusing on this space, but it will be a long time before clear winners emerge.  I think the winners will likely be those who can distribute the experience wherever customers want to consume it – which means we still have a ways to go.

I try to help a non-profit ”international neighborhood micro-center for artistic and intercultural life in San Francisco” with operating and marketing advice.  They put on 120 events a year and I’d always advocated getting the word out about individual events.  We looked at email, and while it would probably work, the overhead for so many was relatively high.  (Almost everyone is a volunteer and resources are scarce.)

Enter Facebook Events.  Set up the event, send an invite, and voila, there’s your email notifications.  Its timely, professional, and useful.  Now I know what’s coming up and can make quick decisions to change my schedule.  It doesn’t feel obtrusive, since I joined the group of my own volition and can control messaging.  It shows the intersection of time-based content, opted in peer to peer communication, and user-controlled media streams (i.e. I still choose email over text) can and will be incredibly powerful.

I expect to see attendance max out going forward.

Yeah, its bad out there.  As a tech vendor, we’re out talking to a lot of companies.  One theme we’re seeing is companies applying unequal tests to evaluate spending on new versus existing efforts.  That’s normally fine, but now every dollar needs to perform. 

This is one of those times when the tide is going out.  (The reference is attributed to Warren Buffet and goes something like “When the tide goes out, we find out who’s been swimming without a bathing suit.”)

You need to inspect every dollar and challenge your assumptions.  Am I generating visits with my radio?  Am I buying too much TV?  Can I get a better deal on my direct mail by bidding out projects?  Because surely your budget has been cut.  And the first reaction is to cut new spending, instead of asking yourself, “Is this proposal a better expenditure than something I’m already doing?”

Nothing should be sacred.  Sports tickets, luxury boxes, or sponsorships – gone (very limited reach, especially geographically).  Television can pause for a while with minimal erosion of awareness.  Radio can probably get lighter for a while with minimal impact.  Newspapers will be extinct in a few years anyway, so might as well learn to live without them now.  Interactive campaigns are fun, but if they aren’t part of a long term engagement program, don’t bother.  Outdoor…uh, I hope not.  [And I won't get into Operations in general - I guarantee you have lots of dead wood.]

What’s on the flip side?  Email, SEM, SEO, Facebook, iPhone, basic customer segmentation, versioning, response modeling (i.e. don’t mail everybody!), PR, retention marketing (pretty much of any kind), etc.

In fact, it might make more sense to do zero-based budgeting where you fund these initiatives first, then see what’s left for the rest.

There’s a lot going on out there, as I noted cuts at Neiman Marcus, Barnes & Noble, Google, rumors of a Microsoft cut, and the Gottshalks bankruptcy filing in the last 30 minutes.

In addition to updating your resume, now is a really, really good time to examine the decisions you make during your work day.  Are you assessing each task for value creation?  Are you considering how to do a task better or cheaper?  Tweaking your mindset now will pay dividends very quickly, as your output produces more value and less busywork.  For example, if you don’t look at your website as though it is a conversion engine, you are missing the point.  Design is nice, content is nice, good writing is nice, but at the end of the day, are you measuring its effectiveness at meeting key objectives, namely leads and/or revenue?

Question your routine, and I guarantee you will quickly find ways to add more value, and make it that much less likely to be on the wrong list when the inevitable layoffs occur.

Its tough out there.  When Best Buy gets 1/8th of HQ staff to take a voluntary layoff that tells you most people there expect it to get worse – and want the severance instead of an involuntary termination.

So as everyone hunkers down, where do you cut?  If marketing expense as a percentage of revenue stays flat or goes down somewhat, those are real dollars that have to come out of the original plan.

Having lived through this on an 8 figure budget, its not a simple question.  Its tempting to either a) cut 100% from a couple of line items to make the number (easy to execute) or b) cut a couple % from every line item (easy to explain).  The real response has elements of both approaches, but what’s important is how they are applied.

Standard ROI Expenditures

These are marketing efforts where the return on investment is well described by classic economics, that is, an upside-down U.  The initial investment has a high return, then it eventually drops to 0, then it turns negative when saturation occurs.  Search engine marketing (SEM) and optimization (SEO), online marketing, CRM and direct marketing are all in this camp.  Good companies are already at the most efficient point of ROI on these investments.  Taking a few percent off these budgets leaves spending that is still very effective.

Discontinuously Effective Expenditures

This is the tricky part.  Some types of spending look like an S curve combined with an upside down U.  The initial investment has a low return, then it hits an inflection point and rises rapidly, then follows the classic upside down U.   For example, a rule of thumb for TV or Radio is that 100 GRPs per week is the minimum to be effective. So if you are buying media right around this level, you need to trim markets or weeks, not points per week.  Your choice of which markets to trim is influenced by your current awareness, maturity, other investments, and overall history.  You might offset this 100% cut by maintaining the other types of spending to maintain some presence in that market.  This is oversimplified, but hopefully you get the point.  You can extend this approach to verticals, partnerships, channels, and other areas where a continual, sustained effort must be maintained or effectiveness drops off quickly.

So I found out a large, well known company (not a client) mails its entire house file each time they send out a catalog.  Still.  In 2008.  WHAT?  We are so far past that I can’t believe it.  Maybe their ROI is positive in every single segment in their customer base for every mailing.  And maybe pigs are flying over San Francisco right now.

What I’m guessing is that no one has questioned why they still mail everyone.  It’s a good lesson, especially given the current environment.  Why do we do something this way?  Why do we use this vendor?  Why is this program running?  Why are we doing this manually? 

Getting into the habit of questioning why something is done a certain way will go a long, long way towards understanding how your CEO thinks. Most CEOs are never satisfied with the status quo, and always look for new, better, and different.  Don’t wait for someone to poke around in your area of responsibility and turn over rocks.  Better for you to turn over the rocks and find the bugs crawling around for yourself.  Because that gives you the opportunity to fix, change, stop, or improve whatever it is you find.

All those investments you’ve made in customer relationships are about to come to fruition.  If you’re in a position where you know who a good chunk of your customers are, now is the time to take advantage of that fact.  Conventional wisdom says to increase advertising in a downturn, so you can take customers away from weaker competitors.  Don’t be that weaker competitor.

Response rates among existing customers will always be better than new customers.  So go talk to those existing customers using targeted offers, double/triple points (if you have them), special events, secret sales, and anything else you can think of.  Since you have email addresses (right!?) you can communicate inexpensively, and drive incremental business with very low expenditure.  So your ROI will be much higher than typical acquisition ROI is in times like these.  And by defending your best customers, you don’t have a leaky bucket problem that requires even more expenditure to address.

The WSJ reported today that we’re looking at Q3 2009 before growth turns up again.  So you have 7 1/2 months to get through.  Good luck.