Dear Colleagues,

Today I received an email to Ask the Marketsmith which contained this question: I am receiving conflicting messages about the state of the economy. When is business going to get better and what should I do in the meantime?

I am not going to say “Strap your crash helmets on, people. We are going for a ride!” It’s not true. But what is true, is that the face of American economics has had a radical change. A substantial percentage of past growth was based on credit, money people didn’t have, but that they spent (borrowed) because they wanted things. Now the credit card companies are trying to figure out a new mechanism to allow people not to go too far. The American spend epidemic has come to a halt. For the next two quarters at least, we are not going to see growth, and once we do start to move upward, it will be slow. No more double digit growth in the foreseeable future for direct marketers and retailers, as a whole.

In the real world, for those of us who are held accountable, the world lens has narrowed to such a degree that risk is now measured in postage dollars that have to be spent before the season is complete. It is one of our greatest risks since postage is so expensive and must be paid up front before any returns are in.

While Goldman Sachs and JP Morgan Chase may be rebounding, the wo/men on the street are not; ten percent of the people in the country are looking for jobs. Everyone, even in the most affluent households, is looking for a deal these days.

BigReasearch, in its most recent monthly Executive Briefing, tells us one in three consumers is planning to spend less this Holiday season than last year. Buyers are looking for bargains/sales, doing more research online and comparative shopping. And the news is similar from Nielsen Economic Current, the National Retail Federation, and even eMarketer is predicting that online sales will be down in 2009 vs. 2008.

Back to the question above, we at Marketsmith are expecting a 15-20% fall off from last year. We suggest that you estimate 15% below last year’s numbers for the 4th quarter.

To answer to the follow on question “Monica, if this were your money, how would you spend it,” here is how I would break it down.

1. Know that your merchandise is a part of your brand value to your customer. Your brand strategy is inextricably tied to your customer’s perception of your company. Make a commitment to understanding the merchandise and how customers respond. Additionally a merchandise analysis can tell you what are the optimal number of pages for your catalog or if you should be mailing two different size books because different customer and prospect groups respond differently. It will also give you insight into which price points work best.
2. Touch the 0-24 month customers and call it a day. I would not take the risk with greater investment, unless it is profitable.
3. Prospect very carefully. If you are not doing a same year payback analysis on your prospecting dollars, you are probably spending money you shouldn’t be.
4. Segment your email names. If you are blasting all of your email addresses at once and using one subject line, you are missing the boat. Treat 0-12 email responders differently than 13+; test different subject lines and offers with openers and non openers.
5. Spend no more than 8-10% of your budget on database marketing. You are better off spending your money on one or two individuals who understand the data and can create strategy. Then deploy a multitude of smaller online and offline programs rapidly, reading results, and adjusting the strategy as necessary.

   Those individuals know that the information from your database is the key to understanding who your customers are, how they respond, and what communication methods work best with which groups. Use your money for analysis and strategy, not capture and storage.

6. Reevaluate your team. Celebrate the internal staff who are your heavy lifters, the go-to-it and get-it-done people. These folks will see you through. If not, get rid of them; campers and sleepers need to go.
7. Get rid of the advertising agencies with big spend that doesn’t show a return to your bottom line. Right now your customers are not looking for glitz, they want confirmation that you understand where they are coming from.

And less can be just as effective as more. As an example, we have recently taken over the DRTV buying for one of our clients. Its agency received $50,000 commissions a week and was 50% behind plan. After one week and one tenth of the spend, Marketsmith improved media buying by 50%. How did we do it? We applied a simple formula: If it worked last week or last month, and you take it down by 20%, you are still safe.
The world is moving at a faster pace than our systems will process, but not faster than logic. Don’t let technology slow or tie you down. React, roll up your sleeves. Make changes in real time.

As an industry, we must be looking for efficiencies wherever we can find them, without sacrificing customer service. This new focus means that we must constantly be evaluating how we spend our dollars to communicate with our customers and which mediums are most efficient.

Bottom line – Be conservative. Make sure you can justify every penny of spend. Focus on your core customers and be prudent in your prospecting. Use your customer research to determine how best to communicate with your customers. For every dollar of marketing spend, make sure you are doing analysis that gives you bottom line results, your return after all costs, not just after marketing costs.

Marketsmith has a history of helping companies cut expenses and improve results, even in the face of this tough economy. Using strategic segmentation based on our database reporting, forensic analysis, in-depth customer understanding, and integrating merchandise strategy with branding, Marketsmith has improved contribution to the bottom line for multiple clients. Call us today to discuss how we can help you do more with less.

We also have a number of white papers which will help you market smarter. Call or email me today to receive any of the following:

• A Solid Base, cost effective databases
• Make Every Page Count, optimal page counts
• Looking Backward to Move Forward, historical analysis
• Co-op Database Relationship Management
• Combating Postage, Paper, and Production Cost Increases

I look forward to hearing from you.

My Very Best,
M-

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