WHY IKEA HAS DECIDED TO (PARTIALLY) GO BACK ON A POTENTIALLY DEVASTATING DECISION…
On August 11th, Ikea announced the permanent disappearance of their paper catalog in favor of the option to download it exclusively online. This was a firm and clear leap for the company, that had actually created a flood of customers devoted to that very marketing tool for years… however, it did not go the way management had hoped.
Since the dawn of time, companies, which are ruled by finance and always looking to eliminate “superfluous costs”, have been thinking obsessively about cutting down on paper and going online. And every blessed time, they get punched in their teeth.
This time it was IKEA’s turn, and after having received a flood of “insults” and protests from their loyal customers, it appears that they have taken a partial step back. Their paper catalog is in fact available again, to be withdrawn officially from all IKEA brand stores. Not only that, many users within our community have told me that they actually received it right at home (even though it doesn’t officially appear on the site).
Aside from the “protests” on customer social networks, are there other tangible and concrete reasons for which a company should not abandon paper in favor of online marketing alone? Or is it just one of Frank Merenda’s bizarre theories without any foundation in the modern world?
In reality the answer is much stronger and clearer than one might think.
A few weeks ago, Erik B. Nordstrom, co-president of Nordstrom, the famous U.S. department store chain, cut sales and profit forecasts after their Q1 (i.e. first quarter) was weaker than expected.
Something like this can happen and obviously there is nothing strange about it, except that the reason why sales have collapsed is actually very interesting.
According to Erik, their results were partly damaged by their decision to stop using physical mail to reach their customers, particularly those participating in their loyalty program.
Here’s exactly what the co-president said:
“During the first quarter, we made some execution errors in the customer experience department that impacted our sales.
We have a loyalty program with over 12 million active customers who contribute to more than 60% of sales in the first quarter.
Last fall, the program evolved with the introduction of the “Nordy Club” which allows customers to earn accumulation points faster and provides early access to products and events.
With that said, the execution of our program was not as successful as we had planned.
As part of our decision to move towards a completely digital program, we have eliminated paper mailings to our customers, only to discover that a segment of our base customers actually relies on receiving this communication via traditional mail.”
Yes, you read that right. He basically said that Nordstrom stopped sending paper communications to its customers, in an attempt to move the entire program online and reach customers faster.
What actually happened?
What happened is that the decision caused a reduction in the number of visits and therefore purchases in all its stores, as its customers expect to receive paper communication (It’s the same reason why Esselunga, by no accident, sends you a flyer every week in paper format, for example) and Nordstrom managers were unprepared for this type of result.
It’s the first time that I can remember that a company the size of Nordstrom admits in a commentary about its financial data that it had a problem cutting its investments in direct, paper mail. Yet that’s exactly what they said.
Nordstrom therefore blamed the sudden drop in sales in the first quarter of this year (at least in part) to a net cut in paper marketing mailings for web-only and “online” campaigns.
To put it simply, as soon as they stopped sending customers their flyer, assuming that by now in the “digital” era (then again, what does this even mean?) everything could be focused on ads, emails, sites and remarketing, visits to their shops and consequently sales have collapsed.
As put by the co-president of the company, Erik Nordstrom (not me), in the public quarterly statements in favor of the shareholders in the public conference.
Since I was sifting through data, trends and declarations in that area, I stumbled upon another quarter-end statement from another publicly traded retail company: J.Jill’s (listed on the stock exchange as NYSE: JILL) whose spokeswoman, CEO and President, Linda Heasley, complained of the decline in chain sales.
“We are disappointed with the performance of our first quarter and we are taking immediate action”
Their first-quarter figures at a glance:
– Total sales of $176.5 million compared to $181.5 million in the same period of the previous year
– Gross margin collapsed year on year from $120.3 million to $116.3 million
– Earnings (the most important data) crashed to only $4.4 million compared to $11.3 million in the same quarter of the previous year.
Looking through the transcript of the statement to its shareholders, after a few minutes Heasley gave her version of the facts:
“Before the start of the quarter, we planned a shift away from paper-based mailings to our customers to other, mostly digital, media.
Simply stated, we moved too far in that direction and too soon.
As soon as we realized the results, we made corrections to our marketing plan, reimplementing direct, paper mailings to our customers, along with some changes to digital activities to better support our promotional activities.
This allowed us to restore traffic to our centers very quickly, curbing the damage.
In short, of two conferences held in the same quarter by two companies listed on the stock exchange, two managers (not some physical direct marketing madmen like me) said the same thing: “We cut the paper funding (to save?) in favor of digital, and sales (as well as profits) collapsed, until we restored paper.”
Heasley went on to say:
“The online ads we invest in bring us a significant number of views, which should lead to brand awareness in the long run (Yeah right, keep dreaming! -Frank. Sorry…)
We will continue to test and optimize the balance between the paper catalog and alternative media, to maximize the effectiveness of our campaigns, messages, creativity and general efforts to attract customers to J.Jill’s stores.”
During the question and answer part of the conference, Ross Collins, a financial analyst from Cowen & Company asked Heasley if she could better clarify what she meant by, “we moved too far, too soon towards digital,” and what they intended to do next.
“Thanks for the question. With regard to the marketing mix, we have tried to compress the role of the catalog in our marketing strategy, since it is a significant investment for us.
We took those dollars and put them into social media and online PPC campaigns, as social media and digital seem to be producing results on average.
In reality we’ve discovered just how important the role of our catalog is to our customers, as it really engages them. And even though they don’t always use the direct response coupon on the cover of the catalog, the catalog serves as a source of inspiration to them.
And this is what I meant when I said that, “we have moved too far and too soon towards digital,” and this is why we are trying to reshuffle spending on paper in the second half of the year.
We’ve decided to invest more in paper-based “contact points” with our customers.”
Not to mention the fact that after the statements about their drop in turnover and even more enormous drop in profits, the value of J.Jill shares has fallen by 54%.
We can see that abandoning paper is not good.
The direct response paper actually continues to produce the best response rate among all media, including social media and email.
This is what emerges from the latest research data “Response Rate Report: Performance and Cost Metrics Across Direct Media.”
The extraordinary thing, precisely in an era where the masses leap to digital without criteria (while big companies like Google and Amazon rediscover paper, strangely enough), is that the response rates in 2018 have practically doubled, reaching 9% for mailings to their own lists and 4.9% for mailings to “cold” lists of potential customers.
The study shows that in the last year the ROI of campaigns has increased by 12%, surpassing that of the online display.
Do you want to be able to create an effective marketing mix for your company without running into the trap of: “I’m clever, I only make online ads so that I save?”—typical of those who let themselves be dazzled by digital and web malarkey and, above all, have only one web agency as their supplier?
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