Tuesday, August 05, 2008
The 3 three most important things I learned from retail advertising
I spent 15 years as the financial analyst and analysis manager of A Defunct Former Catalog House, and later built mailing lists for catalog retailers and financial services companies. Here are the three most important things I learned from retail advertising, and what I think they mean for online.
1. Behavior trumps demographics.
Neighbors are very different, at least in their retail actions. Their constellation of retail choices vary widely within a neighborhood, and just because Bill and Mary have Our Credit Card and spend on it, doesn't mean its worth sending advertising to Joe and Sue next door.
Lesson: Don't bother buying demographic adjacencies (that is, people who look like your sutomers) unless you've run out of behavioral adjacencies (people who act like your customers). And you won't.
Open question: Are Social Network "friends" of a buyer sufficiently better prospects than geographic neighbors of a buyer?
2. Most paper-based advertising is garbage, literally.
John Wanamaker is reputed to have said, "Half the money I spend on advertising is wasted; the trouble is I don't know which half", or words to that effect. Well, if he truly got economic value out of half of his advertising expenditure, he would be the best retail advertiser in history, or perhaps in a tie for that honor with some jeweler in a small town who once sent pre-holiday letters to the two richest men in town, after which one walked in and made a purchase.
But, no, I'm certain he wasted the vast majority of his advertising, though his was the biggest store in Philadelphia. By the last 20 years of the 20th century, only a small percent of those delivered an advertisement would make a purchase during the term of the advertised promotion, and only a percentage of them bought because they saw the item in that advertising. Most of the recipients treated our ad as garbage. Literally.
My Defunct Former Catalog House employer spent at least 90% of the budget in print. Fortunately, literal waste in online advertising is a small percentage of that. The incremental online carbon footprint for $1 million of online advertising is, I'm guessing, smaller than a hundredth of the carbon footprint of the typical $Million AFCH spent: logging, pulping, papering, ink processing, printing, shipping, not to mention trashing and recycling emissions. If I'm wrong, please send me links.
I'm happy they are no longer felling trees in Canada so that my particular Defunct Former Catalog House could tell millions that "Our Best Sofa Spectacular Ever!" was in full swing. I'd be surprised if the incremental Internet heat costs of an online ad placement were larger than the electricity of a CFL for an hour. Advertising is a cleaner industry, and the sooner that newpapers make most of their revenue online, the sooner we'll be a less garbage-making America.
Lesson: Don't obsess about waste. Your ads will not appreciably warm the planet. Online advertising waste is therefore not an ethical issue, just an economic issue in your business. Businesses: Focus on controllable contribution: net or incremental contribution from each separable segment of the ad budget. Increase the dollar yield and you will decrease waste. Non-profits: Choose ad buys to incrementally maximize the desired effect in your communities.
Oh, if you think I'm off base on the incremental carbon footprint of online advertising, please educate me. I've read that Google is now the Earth's largest electric user, but your ads won't change their consumption materially.
3. There is nothing like additional panic ads for last-minute increased sales, so long as it doesn't have to pay for itself. Last minute advertising rarely does.
Scenario: The Season is not living up to our meager expectations. It's too late to print an insert or mailer, but we can get an ad to run in the pages of newspapers. It's got to have impact, so throw in a bunch of low-margin items to "goose" sales. (Yes, that was the verb they used.)
The damage: A dozen people miss at least one family dinner, we spend three-quarters of a million dollars. The return: The weekend is $1.25 million higher in sales than it would have been.
That $1-1/4 million looked good on the daily sales reports, and we wouldn't see the bottom-line impact until the monthly P&Ls. If we hadn't done it, we would have been more profitable. The maintained gross profit (close to the gross margin, for you non-retailers) of the incremental items sold was about $250,000, so the $750,000 spent netted a negative half-million hit to the bottom line: just one of the many reasons that my Former Catalog House is now Defunct.
Lessons for online: Don't panic. Throw good money only after good. Never ask staff to miss a dinner with significant other(s) for something that will reduce our bottom line.
Don't add placements unless you thought they'd be profitable before. The more we know about the specific contribution of each segment of our ad program, the better we'll be able to guess about the productivity of new and different buys. (Ad: We help clients do that in Search and Content advertising.)
Consider more buys or alt. creative to pad a statistic besides cash flow? Each buy, each creative execution represents an investment of our managerial and clerical time: people time. That's what's laid waste from panic buying. "so, don't do it" unless it is worth the financial and human cost.
Not that you would, of course.
1. Behavior trumps demographics.
Neighbors are very different, at least in their retail actions. Their constellation of retail choices vary widely within a neighborhood, and just because Bill and Mary have Our Credit Card and spend on it, doesn't mean its worth sending advertising to Joe and Sue next door.
Lesson: Don't bother buying demographic adjacencies (that is, people who look like your sutomers) unless you've run out of behavioral adjacencies (people who act like your customers). And you won't.
Open question: Are Social Network "friends" of a buyer sufficiently better prospects than geographic neighbors of a buyer?
2. Most paper-based advertising is garbage, literally.
John Wanamaker is reputed to have said, "Half the money I spend on advertising is wasted; the trouble is I don't know which half", or words to that effect. Well, if he truly got economic value out of half of his advertising expenditure, he would be the best retail advertiser in history, or perhaps in a tie for that honor with some jeweler in a small town who once sent pre-holiday letters to the two richest men in town, after which one walked in and made a purchase.
But, no, I'm certain he wasted the vast majority of his advertising, though his was the biggest store in Philadelphia. By the last 20 years of the 20th century, only a small percent of those delivered an advertisement would make a purchase during the term of the advertised promotion, and only a percentage of them bought because they saw the item in that advertising. Most of the recipients treated our ad as garbage. Literally.
My Defunct Former Catalog House employer spent at least 90% of the budget in print. Fortunately, literal waste in online advertising is a small percentage of that. The incremental online carbon footprint for $1 million of online advertising is, I'm guessing, smaller than a hundredth of the carbon footprint of the typical $Million AFCH spent: logging, pulping, papering, ink processing, printing, shipping, not to mention trashing and recycling emissions. If I'm wrong, please send me links.
I'm happy they are no longer felling trees in Canada so that my particular Defunct Former Catalog House could tell millions that "Our Best Sofa Spectacular Ever!" was in full swing. I'd be surprised if the incremental Internet heat costs of an online ad placement were larger than the electricity of a CFL for an hour. Advertising is a cleaner industry, and the sooner that newpapers make most of their revenue online, the sooner we'll be a less garbage-making America.
Lesson: Don't obsess about waste. Your ads will not appreciably warm the planet. Online advertising waste is therefore not an ethical issue, just an economic issue in your business. Businesses: Focus on controllable contribution: net or incremental contribution from each separable segment of the ad budget. Increase the dollar yield and you will decrease waste. Non-profits: Choose ad buys to incrementally maximize the desired effect in your communities.
Oh, if you think I'm off base on the incremental carbon footprint of online advertising, please educate me. I've read that Google is now the Earth's largest electric user, but your ads won't change their consumption materially.
3. There is nothing like additional panic ads for last-minute increased sales, so long as it doesn't have to pay for itself. Last minute advertising rarely does.
Scenario: The Season is not living up to our meager expectations. It's too late to print an insert or mailer, but we can get an ad to run in the pages of newspapers. It's got to have impact, so throw in a bunch of low-margin items to "goose" sales. (Yes, that was the verb they used.)
The damage: A dozen people miss at least one family dinner, we spend three-quarters of a million dollars. The return: The weekend is $1.25 million higher in sales than it would have been.
That $1-1/4 million looked good on the daily sales reports, and we wouldn't see the bottom-line impact until the monthly P&Ls. If we hadn't done it, we would have been more profitable. The maintained gross profit (close to the gross margin, for you non-retailers) of the incremental items sold was about $250,000, so the $750,000 spent netted a negative half-million hit to the bottom line: just one of the many reasons that my Former Catalog House is now Defunct.
Lessons for online: Don't panic. Throw good money only after good. Never ask staff to miss a dinner with significant other(s) for something that will reduce our bottom line.
Don't add placements unless you thought they'd be profitable before. The more we know about the specific contribution of each segment of our ad program, the better we'll be able to guess about the productivity of new and different buys. (Ad: We help clients do that in Search and Content advertising.)
Consider more buys or alt. creative to pad a statistic besides cash flow? Each buy, each creative execution represents an investment of our managerial and clerical time: people time. That's what's laid waste from panic buying. "so, don't do it" unless it is worth the financial and human cost.
Not that you would, of course.
Labels: former catalog house, online advertising, retail advertising, ROP
