Attendees at the Internet Retailer 2005 show in Chicago heard yesterday that direct marketers had all the tools they needed to forge the big names in Web merchandising—but they blew it.
“Why on earth didn’t someone from the direct marketing industry create Amazon, Netflix or eBay?” asked Martin McLanan, the former CEO of Red Envelope and now president of Flax art and design, an Internet provider of stationery and artists’ supplies. “We had the ability to pick, pack and ship better than any other industry. We had the ability to present customers with great information about their orders and order status before anybody else. We knew how to do direct marketing. But for some reasons, we were not able to address the new opportunities presented by Internet retail. And I think it’s unlikely that a lot of innovations today are going to come from catalogers.”
In his talk, entitled “Can the Web Expand the Market for Catalog Merchants?”, McLanan pointed out that catalogers need to take a deeper, more nuanced view of Web sales and the analytics that underlie them, and to get out of their “catalog orientation” that fixates on producing a successful book every month, or every quarter.
McLanan, who said he considers himself “both a catalog and an e-commerce guy”, heads Flax, an outlet founded in San Francisco 60 years ago that branched into catalog sales in the mid-‘80s and Web sales within the last decade. Those non-retail channels now account for about 75% of the company’s sales. It also owns Reliable Home Office and business accessory provider T. Shipley.
McLanan said that moving those businesses onto the Internet with highly interactive rich-media Web sites has opened a whole range of benefits, from broader selection and reach to assets such as feature comparisons and product testing. “We can now go into detail about features for which we could never justify the space [in a print catalog] such as the hardness of a lead pencil,” he said. And the ability to test the appeal of products before they make it into a print catalog is incalculable to McLanan. “If I see an idea at a trade show I can buy the standard product and put it online,” he said. “If it sells, it probably deserves a space in my catalog.”
Online catalogs are a growing phenomenon, of course, but McLanan says his experience has been that the Web also has tripled customer requests for the print catalog. This is even truer for specialty Internet retailers. When he joined Red Envelope as CEO in 2000, the company was a pure-play Web gift retailer and was performing badly, like many other dot-coms. McLanan and other senior executives with catalog backgrounds decided it was essential to give Red Envelope a physical touch point in the form of a catalog. “As soon as that catalog went in the mail, we went from an ethereal, interesting concept to something tangible that people felt comfortable interacting with,” he said. Today, Red Envelope does more than half its sales online, but most of those Web sales can be traced back to receipt of its print catalog.
But if stories such as Red Envelope’s highlight the power of combining the catalog and Internet channels, it’s all the more surprising that catalog sellers haven’t been faster to embrace Web retail wholeheartedly, McLanan said. Rather than thinking about new opportunities, too many catalog sellers are simply focused on making the print book as successful as they possibly can. Catalog merchants operate on a book production cycle that makes it hard to concentrate on merchandising well on the Internet, where things move more quickly and customers have very different needs. That orientation fosters a Web site that is merely a faithful representation of the print catalog, he said.
Most of all, catalog-centric retailers overlook the amount of nuanced segmentation that can be usefully applied to Web sales results, according to McLanan. This can be either because they don’t examine them closely enough or because they report those metrics in siloed formats that never bring them into a wide focus. For example, multichannel catalog/Internet retailers may invest in search engine marketing, but may well not realize that 50% of catalog buyers conduct Web searches before purchasing. “So you’re spending money to get the catalog out, but you’re also spending on search keywords,” he said.
Catalogers who sell on the Web must take a more sophisticated view of affiliate marketing. While affiliate sales increased 30% in 2004, McLanan said, more than half of those orders came from existing customers, not new ones. “So again, as a marketer, you’re double-paying on that revenue,” he said. Direct marketers who venture online must see the distinctions among affiliates—differentiating value-oriented partners from affinity groups, for example—and choose the ones that maximize their return on investment with Web partners.
“One of my big initiatives for next year is reducing the value-oriented affiliates in our network- people who are just trying to commoditize the shopping experience—and focus more attention and dollars on affiliates that have some other cause related to them, such as school groups,” McLanan said. “Those customers have a lot more lifetime value for my business. But I wouldn’t have known to do that if we hadn’t started looking at Web sources beyond our core affiliates.”
Finally, McLanan cited an MIT study that reveled that mailing more catalogs to one’s “best customers” did not increase their Internet purchases, and in some cases actually reduced them. But mailing more books to average buyers did in fact lead them to spend more.
“This is an emerging science, not one-size-fits-all,” he said. “But it’s important to have the detailed analytics to know what techniques are right for your specific organization.”
