How One Mega Company Demolished Their ROI by Being Penny-Wise and Pound-Foolish

by | Jul 12, 2018

In February of 2016, L Brands, the parent company of Victoria’s Secret, fired star CEO Sharen Turney. The new CEO, Stuart Burgdoerfer, decided to take a fresh look at the company and its ROI. He asked, “If we started Victoria’s Secret in 2016, how would we go about marketing and selling?”

On the surface, this seems like a fair question, but there’s one big problem: The answer is irrelevant. They didn’t start the brand in 2016, and the way you build a startup is different than the way you build a multibillion-dollar company. If they were starting in 2016, they’d likely be online only, at least to start.

The Mistake

mistakesArmed with this flawed approach, the executive team at Victoria’s Secret decided to make a huge change to their marketing plan and save $150 million per year by cutting their much-beloved catalog and discontinuing their swimwear line, despite its $500 million in sales.

At the time, one Twitter user commented on the news that Victoria’s Secret had discontinued their catalog by saying, “In big news, the Victoria’s Secret catalog has been discontinued. ‘We have the Internet; we don’t need it anymore,’ said 13-year-old boys.”

I would expect nothing less from the internet, and even some people in the marketing community as a whole. The gross misunderstanding of how marketing works in 2016 and 2017 — especially by those in the media — is a huge part of the issue.

The only thing most of these folks know is what they read on Inc. or Business Insider. They see headlines daily about the death of anything that isn’t Twitter, Facebook, and Snapchat (although now the death of Twitter is a regular story as well). They don’t understand that those catalogs were driving billions in sales. More on that in a moment.

The executive’s reason for cutting the swimwear was that its sales growth was flat in Q1 of 2016. The category had grown by 10 percent in Q1 of 2015, but after one bad year, I guess you go ahead and cut a half-billion-dollar category.

The Aftermath

profit lossIs it possible they just missed the trends for 2016 and needed to replace some fashion designers? Could it have been they weren’t marketing enough and that’s why sales were flat? We’ll never know, because these executives decided no one would miss half a billion dollars in sales.

I don’t know who else they have on the executive team, but they should fire them all after this round of decision-making.

I first wrote about the cutting of the catalog shortly after it was making the rounds on the business news sites. In my opinion, it was a dumb decision; this catalog was driving people online and into the stores. I could literally see it play out in my own house. Some of my friends and I talked about the massive hit the stock price was going to take and how it might make sense to short the stock — ultimately, a good investment.

Over two years have passed since the amazing executive team at Victoria’s Secret made these calls, and now we can see how things have played out. On April 1, 2016, the stock price for L Brands, the parent company of Victoria’s Secret, was $88.08. On September 1, 2017, the stock price was $37.46, with sales down 20 percent. By the start of Q3 2018, the price was hovering around $35.84. There are many questions about the future of L Brands.

About 6 percent of the decrease comes from the discontinued swimwear line. The other 14 percent … perhaps it was the discontinued catalog. These yahoos saved $150 million in advertising costs, likely gave themselves a bonus for doing it, and cut the stock price by 67.5 percent, erasing roughly $15 billion in market cap — 100 times what they saved in advertising costs.

Chasing ROI

On the surface, we all do what these executives do. We want everything to work perfectly and to fall perfectly and neatly into fully trackable and calculable ROI. Well, good luck with that, because that’s not the world we live in. The catalog has been shown time and time again to be difficult to track, but it has a massive effect on the bottom line. Why? Because people get the catalog, browse it, and then feel eager to visit the website or store.

Catalogs are so effective that there are online-only companies that mail them out. and are two online-only retailers that both mail catalogs.

In the age of online ordering, the death of retail, and the fact that all shopping is going to be done on your phone starting any day now, why would anyone in the online arena bother with catalog sales? The only logical guess is that they are making money. It’s hard to track the catalog and its direct sales, but what’s not hard to track is an overall increase in sales.

This brings me back to the start of this rant, which is this: You cannot track 100 percent ROI if you have any complexity to your business. And if you don’t have a complex business, you have a very, very small business. Let me explain.

We’ve all seen the company that sells $27 trinkets or info products. When we look at a case study, those items show an amazing ROI on Facebook or insert media, but they come from a small business that does one or maybe two things.

The Complicated Truth

truthI recently bought a $27 item that keeps my head from bobbing and allows me to sleep on a plane, and it is awesome. But I’ve heard nothing from these people since I got my product. They may have an okay-sized business (I’m not really sure), but it’s a simple business that lives and dies by Facebook traffic, which means it is a dead man walking.

Let’s say you have a more complex business — a business that has many products/services and a ton of moving parts. What happens when you have to first generate a lead before you can make a sale? What happens when you have tons of competition? If you’re a service provider, like a dentist, lawyer, PT, or an HVAC provider, and there are dozens — or hundreds — of competitors in your area, what happens then?

You don’t have a simple business. How are those simple Facebook ad strategies working for you now? Do you possibly need people on the phone closing leads? Well, that’s complicated. Do you need to first generate the lead and then nurture them? If so, that’s also complicated.

You get the point. For most businesses, it isn’t as easy as putting up an ad, making a sale, and shipping a product. Most of us need to work a little harder, and if we do, if we need people to answer the phone or nurture campaigns, or one of a hundred other possible scenarios that make our business work. You now have a problem if you want to track 100 percent ROI on every campaign.

Generating Results

resultsYou may be thinking, “But Shaun, I can totally track 100 percent ROI. We do it in my business all the time.” That’s because you’re tracking first touch or last touch, not 100 percent direct ROI.

If you track first touch, and the lead comes in from Facebook (after eight months of getting emails and direct mail, seeing you at a trade show, or reading your newsletters) and finally makes a purchase, you give the credit for the sale to Facebook.

With last touch, the credit goes to the trade show or a phone call after the trade show. Neither of these is even close to being correct. It took dozens of touches for someone to become a customer.

Now you may be saying, “Shaun, I don’t do lead generation or collect data until they become a customer, so my tracking works.” We’ll we need to talk about not doing any lead generation another time, but I do know that there are a number of businesses run by executives who think that’s just how it’s done in their industry. They’re being naive.

All the research shows that, on average, people need to be exposed to you at least eight times before they even know you exist, which means they saw you in some way, shape, or form numerous times. But you couldn’t track what has now caused them to decide to do business with you.

It’s this same bad logic and basic misunderstanding of how marketing works that caused the executives at Victoria’s Secret to cancel their catalogs and lose billions.

I get this on the newsletter side all the time. Prospects misunderstand the purpose of a newsletter and want to turn it into some lead generation piece (which, 9 times out of 10, is a bad idea).

The goal of the newsletter isn’t typically to get people to read it cold when they have never heard of you before. For that to work, you’d better have some damn good stuff to say and make some astounding offers.

Ikea and Costco both send out a catalog, although Costco’s is more half-catalog, half-newsletter, but that’s not the point. In 2016, Ikea sent 213 million catalogs. In 2013, Costco sent over 103 million catalogs. They can’t track the ROI on those 100 percent, that’s for sure. And can you imagine what it costs to send 213 million Ikea catalogs? It has to be nearly $2 per catalog, minimum.

The Web Of Marketing

marketing textHopefully, I’ve educated and entertained you enough to get to this point in the article, because all of the examples and all of the facts have built up to one word: Stop!

You are shooting yourself in the foot by trying to track ROI on every transaction. You hurt your own growth by not realizing that so much of your marketing is interconnected.

Your newsletter connects to the emails you send and to the reviews you get online.

Facebook ads connect to your website or landing page, the emails you send, or the lead magnet you gave them to opt in.

The sign on the road that people pass by every day is connected to postcards and direct mail pieces you send out and the phone calls you make.

The person who answers your phones and makes an appointment is connected to all the marketing leading up to that point. It is all connected.

This, though, creates another problem: What marketing should you do? You can’t do it all simply because it’s connected. But the answer is simple: You need to start with the fundamentals.

First, determine what the overall goal of your marketing is. Is it lead generation, lead nurturing, customer service, upsells, retention, or referrals? It may be any combination of those things.

Next, work on the foundational pieces: answering the phone, customer service, nurturing, retention, and referrals. The marketing that you need for this is typically phone and customer service training, email marketing, and newsletter marketing.

Finally, you need a system that allows you to ask for, reward, and communicate about referrals. You have to get this stuff right before you even think about more leads.

This is the backbone. You want to track individuals’ performances (on the phone and in customer service) and the campaigns (did we get referrals or not?), but you’re not trying to track any of the media specifically because it is not lead generation.

The Next Step

shiny object syndromeIf your emails aren’t getting a response, maybe they’re boring. If your referral program isn’t working, you’re likely being too cheap. You need to give a better gift and create a better experience, etc. These are the foundational pieces of your campaign.

Once you have those few things on point, you can move on to lead generation. This is when we can get much more accurate tracking because we are asking it to bring in new leads. What you want to do here is track all the steps in the campaign, from lead generation to conversion.

For example, if you generate a lead on Facebook, but to convert that lead you need to send emails and make phone calls, then Facebook is only one component. You may be getting amazing leads from Facebook, but the person making the phone calls sucks, and that’s the real reason your Facebook campaign isn’t working.

But if you don’t look at it from the big-picture campaign standpoint, you may not see this. You’ll fall into the trap of looking at only the lead source and then make decisions based on bad data.

At the end of the day, this is work, and you’ll have a hard time outsourcing it, which can be a challenge. But this is the work that changes lives — most notably your own. This is work worth doing and doing right.

This is worth rereading. Be sure you understand the details of what I wrote here because I can assure you that your competitors don’t understand what you and I have just gone over. This fact will allow you to stay ahead of them and even eventually crush them (if you so desire).

It’s All About Your Most Valuable Asset

customer retentionI’ll close with this thought: What is your company’s most valuable asset? It’s your customer and prospect database. Communicate with them, be it with a catalog, a newsletter, or smoke signals. It provides them with value and reminds them who you are, what you do, and that you’re still in business. This is the most profitable thing you can do.

It is far easier to sell an existing customer something than it is to find a new customer. Don’t make the mistake Victoria’s Secret did and assume that a hard-to-track campaign isn’t making you money. Don’t assume that everything is going digital, because it’s not — not even close.

Be smarter than that. Don’t be penny-wise and pound-foolish. Be smart about your tracking and invest in your foundations first, and I guarantee you will crush it.

Oh, and one more thing: If you’re a publicly traded company executive who is reading this, and you plan on canceling your catalog like Victoria’s Secret did, please send me a copy of the press release at the day you publish it. I’d love to short your stock and make another killing. My family and I will thank you.

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