Don Libey is an optimist, much in the way someone who has swallowed a large dose of castor oil is an optimist: There will be benefits down the road based on his medicine, but the immediate future is one of discomfort.
“Two trillion dollars in bad debt has to be flushed out [of the U.S. economy],” he thundered during a keynote presentation at Merit Direct’s Business Mailer’s Co-op. “This is the end of an economic era of consumption unlike any we have seen before. It will never be 1999 again.”
But Libey’s message was far from “give up.” “There is reason to be happy,” he said. “We are embarking on the most important change in our industry as a result of these economics. The cobwebs are being swept out.”
It won’t be easy. Libey, principal of multichannel marketing firm Libey Incorporated, offered a list of 12 essential concepts marketers must consider to survive the current economy and emerge stronger once the recover starts. While much of his thinking – as is his business – is geared toward catalog-based multichannel marketers, there are takeaways for most marketers.
In order of importance, the concepts were:
1. Margin “With me, margin is biblical,” Libey said. “Genesis 1:1. And it is good.” According to Libey, margins are under pressure and they are being eroded by influences outside of a marketer’s control. A healthy company has gross margin of 54%, according to Libey, and anyone who thinks he can run a company with gross margins under that is “delusional.”
But gross margins are dropping, he said, and the current economy doesn’t offer a lot of leeway for raising them. “You can’t raise prices yet,” he noted. “We are in deflation. When recovery begins, it’s roaring inflation. We are trillions of dollars in debt, and the only way out is inflation. Where are you going to get the five points you need [to make the 54% margin rate]? This is the number one concern.” Any business related discussion, whether about a product, a campaign or a business process, should begin and end with a conversation about its impact on gross margins, Libey said.
2. Leakage “With any company, I say the same thing. Where is the missing two million bucks on the bottom line?” When Libey analyzes catalog firms – one of his company’s core competencies – he first considers circulation and photography expenses before moving to waste in fulfillment processes.
“Then we go to the pet place, the CEO or owner’s personal ideas. They say, ‘I’m gonna invest in this. I’m a total idiot, but that’s okay because it’s my money.’ Not any more, it isn’t, according to Libey. “We are at the point where we are going to have to introduce cost accounting. Study every bit of every transaction. We have always been in the pseudo accounting. It’s been ‘As long as I can cover my advertising I’m okay.’
Reining in leakage requires highly disciplined financial controls, Libey added. “Most companies are fairly mediocre at this: They have private equity syndrome, they only focus on one thing and MBAs focus on another.
3. Systems “Systems generally mean systemic poison,” Libey said. Companies get locked into legacy systems, which are clunky, have newer applications jerry rigged onto them, can’t communicate with different department data warehouses and ultimately don’t meet a firm’s needs.
He also cautioned against using third-party installation consultants (“they overpromise, under-deliver and it ends up being a bug extermination product” as clients pay to have the systems fine tuned) and licensing fees for leased software. Money saved on these fees, he added, would go toward making up margin erosion.
“Until you take responsibility for understanding [a proposed system] fully and can describe it entirely, you will be at risk,” Libey said. “Stop listening to these people who yell at you. Do it yourself.”
4. Analytics Now, Libey is not anti-analytics per se. But he did caution against marketers metric-ing themselves to death. When people overuse metrics, “there are six numbers for every problem – for marketing, for circulation and so on. Nobody can be sure what the [correct] number is.” The need to shore up a specific department’s metric – upon which, among other factors, one’s bonus will depend – will result in companies becoming siloed, and turf wars bounding. “Until we get to the same number we are discussing every day, we will leave money on the floor.” Libey said.
5. Multi-channel circulation Yes, online is sexy. But marketers need to stop abdicating their circulation responsibilities, Libey said. “Circulation needs the oldest, most experienced person–a CEO or CMO. Circulation is a profession, but we have given up circulation for all things online. Handed off catalog circulation to young person. He contacts Abacus and says to its young person, ‘You do it.’ So we have two 23 year olds running the most important part of your business. We have got to get intimate with it and understand it again. Make it a core capability. We can no longer abdicate circulation knowledge.”
6. Customer service In times of economic stress, “The first place we start chopping bodies is customer service,” Libey fulminated. “That makes sense. They’re just frontline people, bridges to your customer, the only ones who can tell you what is really going on. There are 36 things a customer service person can be doing aside from taking orders, such as updating a 24 month file and deleting people who aren’t there anymore. When the recovery comes, you’re going to be sending catalogs to people who aren’t there. In the middle of down times? Paint the ship. Caulk the boat. Make sure the engine is clean.”
7. Product And that includes product innovation, line extension and infusing new excitement into evergreen products. “If you’re not exciting the line, if you can’t steal market share, you’re missing the boat,” Libey said. “This is a beautiful time for product ideation–buy it cheap, get people to tool it for nothing. They need the work. When you create 10 products, is one a winner? Get that up to four or five.”
8. Convenience A well-run company “take the hard stuff out,” Libey said. Take Zappos, the online shoe marketer. “They have 9,000 choices in my size. I can get anything I want from Zappos. Sure, I pay more for the shoes, but I’d pay even more.” Libey advocates asking “waymish” – why are you making it so hard for customers to give you their money -- about every customer-touching aspect of a business.
9. People “We have a choice. We have sil-building non-productive drones, or we’ve got cooperative, interactive highly productive people. If you are an owner, you have two choices. You can hire people smarter than yourself, or people who make you look good. People equal profits. Mediocre people, mediocre profits. Why do you tolerate anything other than the best in your business?
10. Investment “We are too cheap to invest where it means success,” Libey said. And because we are cheap, we invest the least amount where it is least needed. we are a little too cheap to invest in quality or systems integration, too cheap to test, to develop exciting products, products in warehouse that are never going to be sold, to invest in data accuracy. This will bite you in the behind with the recovery comes. The best companies invest in talent and accuracy, and they do this in good times and bad times.”
11. Strategy “Successful companies already have a recovery plan already outlined,” Libey said. The laggards are waiting, and letting their dirty customer lists, and their plans to expand their online presences molder.
12. Capital “Every one of the successful companies that I have worked with and observed is well capitalized,” Libey concluded. When the recovery comes, they know how much they are going to need and have it lined up. There’s not a lot of bank money out there. But the capital issue is very real, and if you are undercapitalized, you have a problem. Either get some money from somewhere, or accept the fact that you are not going to get big. But if you are well capitalized you are going to have opportunities for expansion international, acquisitions, market share expansion, product expansion.”
