Channel Collaboration or Web Cannibalization?

Multichannel marketers experience the frequent concern that online is competing with, or “cannibalizing,” sales in other channels. It seems like a reasonable problem for those responsible, for instance, for the P&L of the retail business to consider; same goes for the general managers responsible for the store-level P&L. I like to do something that we “digital natives” (professionals whose career has only been digitally driven) miss all too often. We talk to retail people and customers in the stores, store managers, general managers, sales and service staff.

Multichannel marketers experience the frequent concern that online is competing with, or “cannibalizing,” sales in other channels. It seems like a reasonable problem for those responsible, for instance, for the P&L of the retail business to consider; same goes for the general managers responsible for the store-level P&L.

I like to do something that we “digital natives” (professionals whose career has only been digitally driven) miss all too often. We talk to retail people and customers in the stores, store managers, general managers, sales and service staff. Imagine that … left-brain dominant Data Athletes who want to talk to people! Actually, a true Data Athlete will always engage the stakeholders to inform their analysis with tacit knowledge.

Every time we do this, we learn something about the customer that we quite frankly could not have gleaned from website analytics, transactional data or third-party data alone. We learn about how different kinds of customers engage with the product and their experiences are in an environment that, to this day, is far more immersive than we can create online. It’s nothing short of fascinating for the left-brainers. Moreover, access and connection with the field interaction does something powerful when we turn back to mining the data mass that grows daily. It creates context that inspires better analysis and greater performance.

This best practice may seem obvious, but is missed so often. It is just too easy to get “sucked into the data” first for a right-brain-dominant analyst. The same thing happens in an online-only environment. I can’t count how many times I sat with and coached truly brilliant Web analysts inside of organization who are talking through a data-backed hypothesis they are working through from Web analytics data, observing and measuring behaviors and drawing inferences … and they haven’t looked at the specific screens and treatments on the website or mobile app where those experiences are happening. They are disconnected from the consumer experience. If you look in your organization, odds are you’ll find examples of this kind of disconnect.

So Does The Web Compete with Retail Stores? Well, that depends.
While many businesses are seeing the same shift to digital consumption and engagement, especially on mobile devices, the evidence is clear that it’s a mistake to assume that you have a definitive answer. In fact, it is virtually always a nuanced answer that informs strategy and can help better-focus your investments in online and omnichannel marketing approaches.

In order to answer this question you need a singular view of a customer. Sounds easy, I know. So here’s the first test if you are ready to answer that question:

How many customers do you have?

If you don’t know with precision, you’re not ready to determine if the Web is competing or “cannibalizing” retail sales.

More often than not, what you’ll hear is the number of transactions, the number of visitors (from Web analytics) or the number of email addresses or postal addresses on file—or some other “proxy” that’s considered relevant.

The challenge is, these proxy values for customer-count belie a greater challenge. Without a well-thought-out data blending approach that converts transaction files into an actionable customer profile, we can’t begin to tell who bought what and how many times.

Once we have this covered, we’re now able to begin constructing metrics and developing counts of orders by customer, over time periods.

Summarization is Key
If you want to act on the data, you’ll likely need to develop a summarization routine—that is, that does the breakout of order counts and order values. This isn’t trivial. Leaving this step out creates a material amount of work slicing the data.

A few good examples of how you would summarize the data to answer the question by channel include totals:

  • by month
  • by quarter
  • by year
  • last year
  • prior quarter
  • by customer lifetime
  • and many more

Here’s The Key Takeaway: It’s not just one or the other.
Your customers buy across multiple channels. Across many brands and many datasets, we’ve always seen different pictures of the breakout between and across online and retail store transactions.

But you’re actually measuring the overlap and should focus your analysis on that overlap population. To go further, you’ll require summarization “snapshots” of the data so you can determine if the channel preference has changed over time.

The Bottom Line
While no one can say that the Web does or doesn’t definitively “cannibalize sales,” the evidence is overwhelming that buyers want to use the channel that is best for them for the specific product or service, at the time that works for them.

This being the case, it is almost inevitable that you will see omnichannel behaviors when your data is prepared and organized effectively to begin to see that shift in behavior.

Oftentimes, that shift can effectively equate to buyers spending more across channels, as specific products may sell better in person. It’s hard to feel the silky qualities of a cashmere scarf online, but you might reorder razor blades only online.

The analysis should hardly stop at channel shift and channel preference. Layering in promotion consumption can tell you how a buyer waits for the promotion online, or is more likely to buy “full-price” in a retail store. We’ve seen both of these frequently, but not always. Every data set is different.

Start by creating the most actionable customer file you can, integrating the transactions, behavioral and lifestyle data, and the depth that you can understand how customers choose between the channels you deliver becomes increasingly rich and actionable. Most of all—remember, it’s better to shift the sale to an alternative channel the customer prefers, than to lose it to a competitor who did a better job.

Zeroing in on Your Consumers With Geo-Marketing

Mobile geo-marketing is growing at a rapid rate. This growth is driven by applications such as navigation, local search and social networking, as well as the public’s understanding of location-based marketing. With the increasing comfort level of sharing location data, brands are turning to location-based marketing to tap into consumers’ behavior to deliver more timely, personalized mobile experiences

Mobile geo-marketing is growing at a rapid rate. This growth is driven by applications such as navigation, local search and social networking, as well as the public’s understanding of location-based marketing. With the increasing comfort level of sharing location data, brands are turning to location-based marketing to tap into consumers’ behavior to deliver more timely, personalized mobile experiences.

Geo-marketing comes in a variety of flavors that utilize different technologies depending on how you are communicating with your consumers:

  • Geo-Fencing: This method is essentially a “virtual fence” designed to enclose a specific area for a marketing purpose. For example, a retailer can run a geo-fencing campaign where they “fence” in an area around their stores for the purpose of pulling in consumers who are near, but not shopping at their stores. Geo-fencing is not location detection in itself, but the geo-fences you setup—and the business rules you define as to what message to communicate to consumers when they are inside, or outside, those geo-fences—can be leveraged in conjunction with location detection capabilities.
  • Broad-Range Location: Some campaigns can leverage general area, such as city or ZIP code, to determine the right message to communicate. For example, an airline simply needs to know the metro area a consumer is closest to in order to personalize offers for flights out of the nearest airport. Location detection in this case does not need to be highly accurate to get the job done, and can generally be supported through most any mobile interaction.
  • Geo-Conquesting: This specific method of geo-targeting allows businesses to capture consumer spend away from competitors. The effectiveness of these campaigns can be further enhanced if the technology partner you are working with can layer on additional data that helps to understand the consumer better, such as third party sources that identify likelihood to purchase certain types of product.

For this article, let’s focus on geo-fencing. What you need to know is that geo-fencing simply needs to be paired up with a location detection technology, such as GPS or carrier network triangulation. Once detected to be inside a geo-fenced area, a brand can then alert potential customers who may not have visited your store otherwise. Retailers can also choose to send information, such as directions to the store, or run hyper-local promotions.

Retailer Takes Geo-Fencing to the Next Level
Belk, the nation’s largest family owned and operated department store, has added geo-fencing to drive in-store traffic and increase revenue across all of their stores by selecting very specific times, like major holidays (Easter and Mother’s Day) or sales (Belk Days) to geo-target customers with time sensitive coupons. For example, coupons for 20 percent off between the hours of 9 a.m. to 1 p.m. were sent out to customers who were near a Belk store to act now before the coupon expires. By offering relevant, time-based coupons, Belk has been able to grow their mobile marketing database and target real customers more effectively.

More Data, No Problems
Today, GPS, Wi-Fi and Bluetooth-enabled smartphones are capable of aggregating and sharing huge amounts of data. This data is very helpful for marketers to get a better understanding of their consumers’ behavior and target them in a more relevant manner.

Geo-Fenced data can then be used to see which offers and locations actually attract more customers, and whether that translates into more sales. Other possible metrics include the effectiveness of advertising, how often a customer visits the store, and how long they shop for. Additionally, geo-fencing can lead to better customer rewards programs. Once you know where your customers are and how they behave, you can encourage and reward them effortlessly.

Geo-fencing gives the customer a much more personalized interaction with brands by offering them timely, relevant offers via their mobile devices. 

Although privacy has been a concern in the past, recent surveys show that customers are happy to trade their personal information in favor of receiving special offers —but it needs to be additive, not intrusive. If it’s done right geo-fencing will revolutionize location-based sales and drive customer loyalty.

The Future of Online Is Offline

I find it offensive when marketers call anyone an “online person.” Let’s get this straight: At the end of some not-so-memorable transaction with you, if I opt in for your how-bad-can-it-be email promotions, or worse, neglect to uncheck the pre-checked check-box that says “You will hear from us from time to time” (which could turn into a daily commitment for the rest of my cognitive life, or, until I decide finding that invisible unsubscribe link presented in the font size of a few pixels is a better option than hitting the delete key every day), I get to be an online person to you? How nice.

I find it offensive when marketers call anyone an “online person.” Let’s get this straight: At the end of some not-so-memorable transaction with you, if I opt in for your how-bad-can-it-be email promotions, or worse, neglect to uncheck the pre-checked check-box that says “You will hear from us from time to time” (which could turn into a daily commitment for the rest of my cognitive life, or, until I decide finding that invisible unsubscribe link presented in the font size of a few pixels is a better option than hitting the delete key every day), I get to be an online person to you? How nice.

What if I receive an email offer from you, research the heck out of the product on the Internet, and then show up at a store to have instant gratification? Does that make me an offline person now? Sorry to break your channel-oriented marketing mind, but hey, I am just a guy. I am neither an online person nor an offline person; which, by the way, happens to be a dirty word in some pretentious marketing circles (as in “Eew, you’re in the offline space?!”).

Marketers often forget to recognize that all this “Big Data” stuff (or any size data, for that matter) and channel management tools are just tools to get to people. In the age of Big Data, it shouldn’t be so hard to know “a lot” about a person, and tailor messages and offers for that person. Then why is that I get confusing offers all the time? How is that I receive multiple types of credit card offers from the same bank within weeks? Don’t they know all about my banking details? Don’t they have some all-inclusive central data depository for all that kind of stuff?

The sad and short answer to all this is that it really doesn’t matter if the users of such databases still think only in terms of her division, his channel assignment, and only through to the very next campaign. And such mindsets may even alter the structure of the marketing database, where everything is organized by division, product or channel. That is how one becomes an online person, who might as well be invisible when it comes to his offline activities.

What is the right answer, then? Both database and users of such databases should be “buyer-centric” or “individual-centric” at the core. In a well-designed marketing database, every variable should be a descriptor for the individual, regardless of the data sources or channels through which she happens to have navigated to end up in the database. There, what she has been buying, her typical spending level, her pricing threshold, channels that she uses to listen, channels that she employs to make purchases or to express herself, stores she visited, lapsed time since her last activities by each channel, contact/response history, her demographic profile, etc. should all be nicely lined up as “her” personal record. That is how modern marketing databases should be structured. Just putting various legacy datasets in one place isn’t going to cut it, even if some individual ID is assigned to everyone in every table. Through some fancy Big Data tools, you may be able to store and retrieve records for every transaction for the past 20 years, but such records describe transactions, not people. Again, it’s all about people.

Why should marketing databases be “buyer-centric”? (1) Nobody is one-dimensional, locked into one channel or division of some marketer, and (2) Individualized targeting and messaging can only be actualized through buyer-centric data platforms. Want to use advanced statistical models? You would need individualized structure because the main goal of any model for marketing is to rank “people” in terms of your target’s susceptibility to certain offers or products. If an individual’s information is scattered all over the database, requiring lots of joins and manipulations, then that database simply isn’t model-ready.

Further, when I look into the future, I see the world where one-click checkout is the norm, even in the offline world. The technology to identify ourselves and to make payment will be smaller and more ubiquitous. Today, when we go to a drug store, we need to bring out the membership card, coupons and our credit card to finish the transaction. Why couldn’t that be just one step? If I identify myself with an ID card or with some futuristic device that I would wear such as a phone, glasses or a wristwatch, shouldn’t that be enough to finish the deal and let me out of the store? When that kind of future becomes a reality (in the not-too distant future), will marketers still think and behave within that channel-centric box? Will we even attempt to link what just happened at the store to other activities the person engaged in online or offline? Not if some guy is in charge of that “one” new channel, no matter how fancy that department title would be.

I have been saying this all along, but let me say it again. The future of online is offline. The distinction of such things would be as meaningless as debating if interactive TV of the future should be called a TV or a computer. Is an iPhone a phone or mobile computer? My answer? Who cares? We should be concentrating our efforts on talking to the person who is looking at the device, whether it is through a computer screen, mobile screen or TV screen. That is the first step toward the buyer-centric mindset; that it is and always has been about people, not channel or devices that would come and go. And it is certainly not about some marketing department that may handle just one channel or one product at a time.

The Big Data movement should about the people. The only difference this new wave brings is the amount of data that we need to deal with and the speed in which we need to operate. Soon, marketers should be able to do things in less than a second that used to take three months. Displaying an individually customized real-time offer built with past and present data through fancy statistical model via hologram won’t be just a scene in a science fiction movie (remember the department store scene in “Minority Report”?). And if marketing databases are not built in a buyer-centric structure, someone along the line will waste a lot of time just to understand what the target individual is all about. That could have been OK in the last century, but not in the age of abundant and ubiquitous data.

“Mail?! Isn’t That Dead?”

“Mail? Isn’t that dead?” That’s the reaction I sometimes get from new friends when I talk about my job (well, part of it): analyzing direct mail. To answer that ‘direct’ question, let’s take a dive into …

“Mail? Isn’t that dead?” That’s the reaction I sometimes get from new friends when I talk about my job (well, part of it): analyzing direct mail.

To answer that “direct” question, let’s take a dive into the retail sector. Yeah, the postal service is in crisis, mail volume is in decline, and digital retail channels are flexing their muscles more than ever. But over the last few months I’ve seen some terrific direct mail demonstrating that some companies still realize and celebrate the unique value of direct mail in positioning their brands.

My first “aha!” moment came in late April, with the new J. Crew catalog. On the cover was a greeting in white text (“NICE TO MEET YOU”) on a red background. But that wasn’t what got my attention. It was a two-page spread inside — the welcome to this “Style Guide” — that made me stop and read closely (see image in the media player).

The letter talks about how the catalog has been used by customers: “You read us on the train and on the beach. You also dog-ear the pages to mark your favorite looks … SO HERE’S YOUR OFFICIAL COLOR BIBLE, YOUR OCCASIONAL TRAVELOGUE, YOUR WHAT-SHOE-GOES-WITH-WHAT-SKIRT AND WHAT-TIE-GOES-WITH-THIS-JACKET SOURCE OF INSPIRATION.” In essence, the catalog is a benefit all by itself.

Lord & Taylor mailed a Style Guide of its own in August. It includes a note from Suzanne Timmins, the company’s Senior VP & Fashion Director, who confidently proclaims, “Our Style Guide is all you will need to build your fall wardrobe. Take it from me, it’s what’s chic right now!” Likewise, Ann Taylor’s head designer, Lisa Axelson, introduced readers to the store’s first edition of “The Workbook.” Actress Kate Hudson, the star of its Fall ads, appeared on the cover, but, Axelson says, the focus of the issue is on “women like you, with 9-5 schedules and a 24/7 life.”

As with the other catalogs, there are lots of call-outs throughout to combinations of styles both new and old. Both the Ann Taylor and Lord & Taylor efforts include incentives (a gift card and coupons, respectively) that are good only at the brick-and-mortar stores; the J. Crew offer code can be used either at a store or online.

It’s not just apparel retailers who are championing their expertise and exclusivity. On a cover, Design Within Reach recently asked its readers “What is MODERN?” The answers — “the people and places that shaped the modern objects with which we live” — are found on the pages inside, claims company president & CEO John Edelman in the letter inside.

Much of the catalog explains the history of the design movement, and showcases products that exemplify the people, places, forms and materials that influenced decades of home and office design. It’s all about having an ongoing conversation, according to Edelman. “Talk about design, test us on our knowledge, or just listen to our stories.”

Many retailers can sell clothing and furniture like what these cataloguers offer. They can promise lower prices, similar quality, and good customer service. But these companies stand apart because of how they keep direct mail relevant; they use high-quality paper, copy and images to break through the mailbox clutter and build (or reinforce) a unique identity for themselves and, for their customers, a lifestyle.

So, to answer that original question: Dead? Nope.

Paul Bobnak is the director of the Who’s Mailing What! Archive, the most complete library of direct mail in the world. Reach him at pbobnak@napco.com.

Catalogers & Publishers Get ‘Lucky’ as Their Mail Gets a Valuable Second Life

I recently took a trip to Sonoma County, Calif. While I was there, I learned of an innovation with a firm called REMAG that would have consumers return their used, mailed catalogs and magazines to REMAG-administered kiosks and recycling collection bins in test store locations. By scanning a barcode on the label of a returned catalog or magazine at the kiosk location, the consumer can receive multiple coupons of their choice for a future purchase from a publisher or catalog, a wide variety of store items, or other kiosk marketing sponsor-partner.

I recently took a trip to Sonoma County, Calif., and while the trip involved some sight-seeing among my business goings-on, it also had its share of personal visits to the local grocer, a nearby store called Lucky.

Lucky is part of a store chain owned by a firm called SaveMart, another California-based food retailer. SaveMart operates both Lucky and SaveMart in 243 store locations throughout California.

While I was there, I learned of an innovation with a firm called REMAG that would have consumers return their used, mailed catalogs and magazines to REMAG-administered kiosks and recycling collection bins in test store locations. By scanning a barcode on the label of a returned catalog or magazine at the kiosk location, the consumer can receive multiple coupons of their choice for a future purchase from a publisher or catalog, a wide variety of store items, or other kiosk marketing sponsor-partner. It’s not that much different from returning cans and bottles to a kiosk, except catalogs and magazines don’t come with deposits to be redeemed—consumers instead are rewarded with coupons for recycling.

It struck me how much of a win/win/win this is for everyone, and made me curious as to whether or not REMAG, which is a two-year-old company, is set to take off.

Think about all the benefits that are accrued here among stakeholders:

The consumer gets a handily located recycling kiosk just as they are entering a food retail location for this highly desired grade of recovered paper—old catalogs and magazines (OMG). OMG is highly valued since its fibers are usually long, dense and strong, making it a valuable component of subsequent manufactured recycled paper products. For their efforts, the customers are awarded a discount, coupon or other incentive to purchase from the very companies and brands they frequent.

For the retailer, REMAG kiosks are a great way to attract new customers and reward customer loyalty. The retailer also generates revenue for the valuable OMG that is recovered at the kiosk, alongside the customer purchases made during the store visit. In addition, with five cents of every coupon going to a local charity, the store gets customer “good will” for siting the kiosk and is assisting the local community—always popular for retailers. Lastly, as another recycling station—in this case for OMG paper—the REMAG kiosk is easily integrated into a store’s already-existing recycling collection center (where bottles and cans are collected, and deposits redeemed).

The catalog retailer and magazine publisher also gain from good will, while extending future purchase opportunities to the consumer who is performing the recycling collection task. (Most likely these consumers are already a catalog prospect or customer, or subscriber or casual reader of the magazine.) In turn, by way of incentives, these marketers may receive a new merchandise purchase by way of the coupon, or a new, renewed or gift subscription that otherwise may have gone untapped, or pushed off to another unspecified time. As magazine newsstand sales wane, this innovation could be an important method to attract new customers and remind readers to renew, or to perhaps extend a gift subscription to another.

REMAG gains, too. Whether or not the kiosks carry the REMAG branding, or that of the host store or other marketing partner (publishers, catalogers, recyclers, paper companies, etc.), the company gets to share a percentage of the coupon redemption revenue for every new product order or subscription it generates for its partners, as well as revenue for category sponsorships.

Local recyclers or paper companies with which REMAG does business get to put the collected papers to subsequent productive use—ensuring another life for a valuable fiber and an affordable source for that fiber. Despite the uncertain economy, there is a critical shortage of recovered paper—and all indications are that this commodity will continue to grow in demand globally. Magazine publishers and catalogers have an easy way to show that they are part of the solution.

Think global, act local. I suspect most California consumers, like most Americans, love to recycle, or at least support recycling collection activity as a matter of habit. The key is to make recycling collection easy and convenient. With a financial reward for recycling, both REMAG and SaveMart are excited about the prospects for a successful trial.

According to REMAG’s sustainability consultant David Refkin, the Lucky/SaveMart kiosk placement agreement initially will involve up to 8 stores in the Bay Area and the Central Valley of California for an initial test. If all goes well, it will likely roll out to other Lucky/SaveMart locations, too. One of the pilot location stores will be in San Bruno, very close to San Francisco Airport should you happen to be in the neighborhood.

For REMAG to be successful, many moving parts will have to come together successfully. There will need to be promotion of the participating store drop-off locations, as well as accessibility and awareness to the consumer. The collected material will need to be picked up, transported or distributed to a local or regional recovered fiber user.

The host store locations will hope to see local residents participating cleanly—as they potentially grow business by attracting new customers who happen to learn of the recovery drop-off sites, and choose to use them. And catalog retailers and magazine publishers will need to participate as well, to make sure they are leveraging this new and environmentally friendly “channel” in a smart business way that engages their prospects and customers.

Let’s see what happens in California and REMAG’s test there. We all might stand to get a little bit lucky.

Holiday Paid Search Analytics Reveal Insights Into Today’s Cross-Channel Shopper

When analyzing early holiday paid search data, it’s readily apparent that shopping is truly a cross-channel endeavor. For instance, the majority of this year’s Black Friday shopping occurred in-store, but consumers used search engines in droves before setting foot in a store. Search helped shoppers map out their in-store Black Friday strategies, informing them exactly where and when they could find the best deals on the products they wanted.

When analyzing early holiday paid search data, it’s readily apparent that shopping is truly a cross-channel endeavor. For instance, the majority of this year’s Black Friday shopping occurred in-store, but consumers used search engines in droves before setting foot in a store. Search helped shoppers map out their in-store Black Friday strategies, informing them exactly where and when they could find the best deals on the products they wanted.

Search played a major role in driving in-store traffic this Black Friday. Performics tracked a huge spike in Google paid search clicks for its clients on both Thanksgiving and Black Friday. Paid search clicks increased 87 percent year-over-year on Thanksgiving and 65 percent year-over-year on Black Friday. Additionally, this year saw the most mobile paid search clicks and impressions ever seen on Black Friday — 400 percent more than 2010.

#INLINE-CHART#

For the second consecutive year, Black Friday clicks surpassed Cyber Monday clicks. The adjacent graph shows three primary spikes in 2010 and 2011 fourth quarter paid search clicks. Black Friday represents the biggest spike, with Thanksgiving and Cyber Monday (which were close to each other) following behind.

Cyber Monday has historically been the biggest online sales day of the year, not Black Friday. In terms of online sales, Black Friday historically ranks behind Cyber Monday, Green Monday (the second Monday in December) and Free Shipping Day. Black Friday drives the most clicks, but the fourth most online sales.

This indicates that consumers use search engines heavily on Black Friday to discover the best in-store deals. Post-recession shoppers are researching on their computers and mobile devices more than ever to find the right combination of quality and price. The rise of mobile, highlighted by the 400 percent year-over-year increase in Black Friday mobile clicks, is the biggest indicator of true cross-channel shopping.

Not only are on-the-go consumers searching for your store locations, but they’re also conducting competitive price searches and looking for product information on their phones/tablets while in your store. According to Performics’ 2011 Social Shopping Study, 62 percent of consumers perform competitive price searches on their mobile devices while in a retailer’s store and 41 percent look for product information.

To capitalize on this cross-channel shopping behavior during the holiday season and beyond, marketers should do the following:

  • integrate online and offline promotional planning;
  • create strong mobile websites;
  • use paid search extensions (e.g., addresses, phone numbers, click-to-call) to aid searchers looking for your store;
  • let searchers know that products are in stock in your stores;
  • ensure visibility in mobile search for keywords likely to be used by shoppers searching for your store while on the go or in-store; and
  • create comprehensive local paid and organic search campaigns.

Marketers should invest in analytics to understand exactly how search marketing affects offline sales. Uncovering insights through data will help you best allocate budgets and create marketing strategies to maximize cross-channel performance.

The Yin and Yang of Dealing with Good and Lousy Customers

For years I used to quote the statistic that a satisfied customer will tell three people, while an unhappy customer will tell 11 people. This was B.I. (before the Internet).

Today, an unhappy customer can go online and reach tens of millions of people around the world with an angry message.

One of the most fascinating figures in modern retailing is Bradbury H. (Brad) Anderson, a Northwestern Seminary dropout who went to work for a small midwestern music store called Sound Music. Over the years, Anderson turned the little shop into electronics behemoth Best Buy, with 1,400 stores across the United States and Canada, $45 billion in sales and 155,000 full- and part-time employees.

The corporate philosophy of most giant retailers is to drive every possible consumer into the store with TV advertising, cents-off coupons, mail shots, special newspaper offers and all the other bells and whistles of marketing wizardry.

But Anderson saw that many of these giants were performing poorly.

Several years ago in analyzing Best Buy’s customer file, he discovered that of the 500 million customer visits a year, 20 percent—or 100 million—were unprofitable.

So he hired on as a consultant Columbia Business School Professor Larry Selden, author of “Angel Customers and Demon Customers: Discover Which Is Which and Turbo-Charge Your Stock.”

It was Selden who came up with the revolutionary theory that a company is not a portfolio of product lines, but rather a portfolio of customers.

Direct marketers have operated on that premise since the 1920s.

Selden divides customers into “angels” and “devils.” Angels are the desirable customers who buy stuff and keep it—the kind of folks worth doing business with.

“The devils are its worst customers,” writes Gary McWilliams in his Wall Street Journal account of Best Buy. “They buy products, apply for rebates, return the purchases, then buy them back at returned-merchandise discounts. They load up on ‘loss leaders,’ severely discounted merchandise designed to boost store traffic, then flip the goods at a profit on eBay. They slap down rock-bottom price quotes from Web sites and demand that Best Buy make good on its lowest-price pledge.”

As with direct marketers, Best Buy carefully analyzes its customer base, spending time and money to lure the angels into the store and eliminate promotional efforts to the devils. It is also enforcing a 15 percent restocking fee for bad actors.

Unlike direct marketers, Best Buy cannot keep these sleaze balls out of its stores. But it can make life difficult for them while, at the same time, giving excellent service to its good customers.

On the other hand, when you have 155,000 employees, not all are smooth schmoozers or judges of people and absolutely “go by the book.” The result, nice folks can have miserable customer experiences and tell the world.

Satisfied Customers vs. Angry Customers
For years I used to quote the statistic that a satisfied customer will tell three people, while an unhappy customer will tell 11 people. This was B.I. (before the Internet).

Today, an unhappy customer can go online and reach tens of millions of people around the world with an angry message.

What triggered this story was the following e-mail forwarded to me last week by a long-time colleague that directly relates to Brad Anderson’s customer angels-and-devils policy.

Dear friends:

I received several copies of this email. My own take on dealing with retailers like this: Use a credit card.

BEST BUY, MY FOOT
Best Buy has some bad policies…. Normally, I would not share this with others. However, since this could happen to you or your friends, I decided to share it. If you purchase something from Wal-Mart, Sears etc. and you return the item with the receipt they will give you your money back if you paid cash, or credit your account if paid by plastic.

Well, I purchased a GPS for my car, a Tom Tom XL.S from ‘Best Buy’. They have a policy that it must be returned within 14 days for a refund!

So after 4 days I returned it in the original box with all the items in the box, with paper work and cords all wrapped in the plastic. Just as I received it, including the receipt.

I explained to the lady at the return desk I did not like the way it could not find store names. The lady at the refund desk said there is a 15% restock fee for items returned. I said no one told me that. I said how much would that be. She said it goes by the price of the item. It will be $45 for you. I said, all you’re going to do is walk over and place it back on the shelf then charge me $45 of my money for restocking? She said that’s the store policy. I said if more people were aware of it they would not buy anything here! If I bought a $2,000 computer or TV and returned it I would be charged a $300 restock fee? She said yes, 15%.

I said OK, just give me my money minus the restock fee.

She said since the item is over $200, she can’t give me my money back!!!

Corporate has to and they will mail you a check in 7 to ten days. I said ‘WHAT?!’

It’s my money! I paid in cash! I want to buy a different brand. Now I have to wait 7 to 10 days. She said the policy is on the back of the receipt.

I said, Do you read the front or back of your receipt? She said well, the front! I said so do I. I want to talk to the manager!

So the manager comes over, I explained everything to him, and he said, Well, sir, they should have told you about the policy when you got the item. I said, No one has ever told me about the check refund or restock fee, whenever I bought items from computers to TVs from Best Buy. The only thing they ever discussed was the worthless extended warranty program. He said, Well, I can give you the corporate phone number.

I called corporate. The guy said, well, I’m not supposed to do this but I can give you a $45 gift card and you can use it at Best Buy. I told him if I bought something and returned it, you would charge me a restock fee on the item and then send me a check for the remaining $3. You can keep your gift card, I’m never shopping in Best Buy ever again, and if I would of been smart, I would of charged the whole thing on my credit card! Then I could have canceled the transaction.

I would of gotten all my money back including your stupid fees! He didn’t say a word!

I informed him that I was going to e-mail my friends and give them a heads up on this store’s policy, as they don’t tell you about all the little caveats.

So please pass this on. It may save your friends from having a bad experience of shopping at Best Buy

It’s true! read it for yourself!!

Takeaways to Consider

  • As a result of this letter, I will think twice about ever shopping at Best Buy.
  • If this letter was forwarded—and re-forwarded—around the world, tens of thousands of wary prospects will drive right past Best Buy make a point of shopping at Wal-Mart, Target or Radio Shack.
  • It is assumed that you analyze your customers every which way to Sunday. The simplest formula in the direct marketing community is recency-frequency-monetary value (RFM). (Other highly sophisticated systems are available and should be looked into.)
  • Divide customers into quintiles, with the top quintile being your caviar and cream.
  • The bottom quintile is very likely costing you money.
  • The object of marketing is to move customers in the second quintile into the first quintile, the third quintile customers into the second quintile and so on.
  • In direct marketing, it is relatively easy to control the bottom quintile by marketing to it with less frequency, but keeping the addresses current so you can make money off of list rentals.
  • In retail, the bottom quintile is a nightmare. It’s tough to keep undesirable customers out of stores. One possibility is to divide the bottom quintile into its own quintile with the bottom two-fifths—the serial returners and shysters whom you do not want as customers—dealt with firmly.
  • This must be handled with great delicacy. Otherwise consumer activist groups can get on your case and create a flurry of poor publicity.
  • When you go to www.bestbuysux.org, you will find that Best Buy owns it and has turned it into a sales pitch for its products and services.
  • You may want to own the following URLs: www.[YourCompanyName]sucks.org and www.[YourCompanyName]sux.org and follow Best Buy’s example.
  • It used to be axiomatic that a happy customer will tell three people; an unhappy customer will tell 11 others. Today, with the Internet, an unhappy customer can tell the entire world.