What does the Safe Harbor Legal Ruling mean for Marketers?

As a guy who straddles the line between technology and marketing, this is an interesting week. If you haven’t heard, the European Court of Justice struck down the Safe Harbor agreement from 2000 that protects your ability to move data from the European Union to the U.S.  A lot has been written about how this affects IT or big cloud companies, but not a lot about how it impacts marketers. Well it  definitely has an impact on you. And the ruling affected the agreement immediately.

In essence, it means that marketers on the whole need to get smarter about technology and understand it much better. This is my legal take on the Safe Harbor ruling and it’s written in my layman’s terms. If you do business in Europe or pull data from Europe to the US (including for employees), you need to call your attorney today and figure out what is next. You need a legal opinion that you can stand behind.

Here’s my initial take on some of the ramifications:

  1. Big versus small. This ruling seems aimed at Facebook, Amazon and the other big players, but it actually impacts the small guys in a much more meaningful way. The big guys have data centers in Europe and already have some legal protections in place for what they are doing. The small guys don’t and will need them fast. It also impacts the costs of expanding into Europe for marketing teams – additional safeguards on data will be required.
  2. Data streams. Suddenly marketers need to understand their data flow. Where “in the cloud” are you storing data? The key question is around European privacy. If you’re taking data that can identify a person in Europe and moving it to a cloud service in the US or to your servers, this ruling impacts you. You’ll need cloud services that store data in Europe and some safeguards that keep personally identifiable data from flowing to the US.
  3. Lawsuits. The door is now open to lawsuits from EU residents who feel you are not protecting their privacy. US laws are very lax on privacy whereas the EU takes it very seriously. So far, US companies have been able to ignore EU privacy laws for the most part, that is not true post-ruling (until a Safe Harbor 2.0 gets nailed down).
  4. Protections. Again, this is my opinion and I am not an attorney. Talk to yours. Here are some ways to try and protect yourself from this ruling:
    1. Require EU users to agree that you can transfer their data overseas. It also helps if you have a rational need as to why the data is transferred, e.g. we ship from the US, etc. This is a good way to protect yourself for ecommerce retailers.
    2. Use one-way encryption algorithms to encode the data and dump personally identifiable information. If you don’t need to identify the specific person, then don’t. This way you can continue to use data for analytics and modeling, but you protect yourself from privacy lapses.
    3. Model Clauses. This is the way big guys deal with it. Talk to an attorney.

I’m hearing two things: small guys feel like they will never get noticed or they haven’t even heard of the Safe Harbor ruling. Both are dangerous. My understanding is that any E.U. user can file the lawsuit that causes you problems. So being small isn’t a big protection if you’re doing business in Europe.

I recommend at a minimum that you take the time to write up a legal blurb that says “if you click this button, your data will be used in the United States” etc. And understand why you need the data here. If you’re collecting a lot of E.U. personal data, I recommend figuring out your data flows and making sure you keep the E.U. data in the E.U. unless you have a clear, documented rationale why that won’t work.

More to come in the next week as attorneys start parsing the ruling and its ramifications. On a side note, we need to push the U.S. to get the Safe Harbor 2.0 done, so write or call your congressman. Rumors are that it is delayed over access to data by U.S. government groups. That’s frankly ridiculous in my opinion.

Have I missed something? Or stated it wrong? Please let me know in the comments.

2015 Christmas: Another Year of Heavy Discounts

Consider this a prognostication on the future. Translated: my best guess with a bit of intelligence thrown in for good luck.

I’m taking what is actually happening in the economy and going to the logical conclusion for this holiday season (to be more politically correct). Here’s a few key data points to start the discussion:

All in all, I think we’re shaping up for a tough Christmas season. The combination of high unemployment and low wage growth typically results in lower consumer spending. Add in high inventories at companies and I think you’ll see a brutal season of markdowns and less-than-ideal margins on the retail side of things. This will add to the downward pressure on spending (people are saving the extra money, not splurging at this point) and creates a downward cycle.

How are you planning your 2015 holiday sales? Heavy on discounts? Big sales gains expected? I’m curious where business are planning because they have the best intelligence on what is happening now. But my economic look into the future seems to indicate heavy discounts and less spending.

Reuters has an interesting article on retail sales projections here.

How I see the World (or Winter is Coming)

One of my side-obsessions is investing. I actively manage an IRA and investment account with my personal money in it, so I’m always trying to look into the future and figure out where we’re headed. Good investing is akin to be a good fortune teller (and has about the same level of accuracy). So I’m writing up my thoughts to increase my personal discipline when it comes to thinking through investments. This is just a start and the big picture view:

Right now the world is awash in debt. Over the past few decades we’ve seen an enormous increase in global money supply and in debt. At the same time, we’ve developed this faith in central banks to remove any negatives from the business cycle and constantly fix any problem that pops up. The world is not okay. I see three big problems all starting to collide in 2015 and I’m still reconciling where the fallout lies.

PROBLEM 1: DEMOGRAPHICS

My marketing work lies in demographic analysis, so this is close to my experience. People drive the economy. This is very visible in the US, but look at Japan as the prototypical example of this issue. When your population stops growing (e.g. people aren’t reproducing above the 2.1 kids necessary to grow the population), then the population ages. As people, we spend money in very similar patterns over our life. Young people buy much more stuff than old people, generally speaking. Young people create inflation, old people create deflation. There’s a lot more behind this assertion, but at a high level it is true (mainly because young people take on debt, old people pay it off). Japan has had to print money like a counterfeiter at Rio’s Carnival to keep their economy afloat. In normal times, this would have resulted in massive inflation. Because of their demographics, it hasn’t. But that leads us to the second problem (which Japan has) …

PROBLEM 2: SOVEREIGN DEBT

The latest numbers I’ve seen show the world debt levels (not just sovereign) at around $200 trillion dollars. Way, way above just 10 years ago. In the U.S., we admit to around $18 trillion dollars in debt (the last two presidents have both doubled the debt while in office), but that’s ignoring our implied commitments (social security, etc) that are likely two times this. Across the world, debt levels are out of control. I don’t have an economics background (which seems to be an advantage), but I’m not sure how countries can continue piling up debt with no remote plans to slow down or start paying it off. Japan is interesting to watch as they, seemingly without any concern, print money as fast as they possibly can. When does Japan become the next Greece? And how long will people continue believing that sovereign debt is risk free? There’s a Lehman moment coming and that concerns me. Also, I believe that the first two problems lead to the bigger issue, which is problem number three.

PROBLEM 3: SLOWING WORLDWIDE DEMAND

Debt slows an economy when it hits a certain GDP level, which I believe we have achieved in the US. In addition, too few young people reduce the need for things. Combined they result in a slowing demand for goods and services that has a rolling impact on the economy. I believe the disaster in commodities is the first place you are seeing this lowering of worldwide demand. This issue is tightly tied into the two problems above and leads to deflation. That’s where I think we’re going: deflation. Because of China’s massive building spree, we have too much production capacity across the world and not enough demand for products. The hope was that China would convert to a consumption economy and pick up the slack from slowing US growth. Clearly that hasn’t happened and I still believe China is essentially hitting a hard, hard landing. There is no country (I see) that has the growth to potentially pick up the baton. And I think the US is borderline recession at this point.

CONCLUSION: DEFLATION

In the end, I think we’re headed for tough times worldwide. This is a global debt hangover that makes our 2008 mortgage disaster look like a mild cold. In terms of investing, I’m long on the dollar (safe haven), short the Chinese market, short the Yen and actually short gold and silver (deflation pull is stronger than their safe haven pull). I also expect the S&P, NASDAQ and Dow to have significant corrections this year, so I’m waiting for a good chance to short those markets (only corporate buybacks are holding them up at this point).

So this is a summary of where my head is at this point. For the past two months I’ve done extremely well with my investments and I think the short-term outlook is good. Long-term I’m still trying to figure it out. But I’m worried. I can’t help but think: Winter is Coming.

Other random predictions:

  • Oil will be below $30 in 2016. Might hit $30 by the end of this year.  And won’t hit $100 a barrel for at least two years.
  • Telsa, Amazon, Twitter and other companies that have huge valuations but virtually no profit (social media) are great short opportunities. But so far I haven’t jumped in.
  • Europe is in worse shape than it appears. I think the Euro falls below parity with the dollar in early 2016.
  • Bonds are a disaster. I think we’re already seeing a move to quality investments and junk bonds are going down fast. I keep thinking I should short Spanish and Italian sovereign bonds, but I haven’t done it yet.

I’m curious as to your thoughts. Feel free to comment below.

Ecommerce Acquisition: Where do customers come from?

I talk a lot to B2C ecommerce folks, both small and big. And one of the most frequent questions I hear is something along the lines of “where should I be getting customers?” Sometimes this is asked about a specific channel (should they be xx percent of acquisition?) and sometimes about the whole (how do I get more free customers?). But it’s asked a lot.

There are guidelines around B2C customer acquisition that are reasonable across most industries and most target markets. However, I would preface the discussion by saying these are averages. And like the average human, they don’t really exist. Virtually no one will fit comfortably into this breakdown, since everyone does something a little better/worse than others. However, how you fit (or don’t) will tell you a lot about your business.

Here’s what I’ve seen:

Tactic % of sales Comments
Paid Search 20 – 30%  
Organic Search 15 – 25%  
Email 15 – 20%  
Display 8 – 15% Can be higher for high margin businesses. Includes retargeting.
Direct Traffic 8 – 15% Wide variability based on offline marketing & brand strength
Affiliate 3 – 11% Trending down as affiliate loses its luster
Marketplaces 4 – 9%  
Referral Traffic 3 – 7%  
Social Media 0 – 2% Can be slightly higher, but rare

 

Almost everyone has at least one exception to this. First, Display, Affiliate and Marketplaces don’t exist for all ecommerce folks, but you can remove them and disperse their percentage over the rest. Second, retailers with strong offline marketing (commercial TV, direct mail, etc) are likely to have higher Direct Traffic and search numbers.

Other thoughts:

“FREE” Marketing: One of the biggest problems is when Free Programs aren’t making up enough of your sales. I use parenthesis around “FREE” because these all require effort and costs, but you don’t pay by the customer typically. Organic Search, Email and Direct Traffic need to push close to 50% of sales in order to help pay for some of the other programs (particularly if you’re doing Display). This is probably the number one issue I see with struggling retailers: they are paying too many tolls on their customers.

The Paid/Organic ratio: A related problem is around Paid Search versus Organic Search. Logically, these programs are in competition with each other. They are very tied together, but almost never make up the same amount of sales. I’ll commonly see a Paid Search program that makes up 30% of sales connected with an organic program that makes up 6% of sales. This means you need to work on organic. They should be closer to one another, however they rarely are very close. Google now takes up 90% of the above-the-fold space on the search page with paid ads, so Paid typically dominates by about 500 basis points.

Content marketing: Content drives the free programs, so good content can pay for itself fast (and keep giving over time). The move for ecommerce guys towards content is really a move to capture more sales through Organic, Email, Direct, Referral and Social traffic. If those five are all hurting, it’s likely more a content problem than a technical issue.

Social Media marketing: Social will not be a huge part of your sales. Yes, there are stories of ecommerce plays that do very well through social media marketing. Typically these are targeted at very young people and are very small businesses. For a medium-sized business, social is a customer service arm and an awareness play. Note that the one exception to this tends to be Pinterest. Pinterest doesn’t consider itself a social media website; they believe they are a search and shopping site. This is much more accurate. Good, helpful content on Pinterest can drive your social numbers up. But they are still unlikely to get to 5% of sales. Very unlikely.

Hopefully this is helpful. If you’re willing to share how you differ from the above, I’m glad to give you my two cents as to why you likely differ. Reach me at jay [.] m [.] allen [at] gmail. Leave out the brackets.

Data is Changing Us

One thing that isn’t discussed enough is data. Data is changing a lot about what we expect and what we are willing to accept. The internet, in particular, is generating massive amounts of data on a continuous basis; take a look at this live infographic  estimating how much information is being generated right now. It’s amazing (note: I have no idea whether there is much statistical reliability to these numbers, but I think the direction is correct).

The one thing not discussed is that data is enabling better design, better products, and better performance of those products. As data has been used to augment, our expectations of new offerings have gone up. Companies like Amazon use data in very effective ways to raise the bar across industries. Mary Meeker suggested in her analysis  that very little of the data created on a daily basis is currently being mined to improve our products. I think that’s the big opportunity of the next 10 years. How can data dramatically improve your products (or your marketing) if you were able to deeply use and understand it? And where do you have an advantage because of data?

It’s a way to rebuild the competitive advantage that was dwindled away in recent years.

Marketing Proprietary Product Online

Proprietary brands and products have become the end-all and be-all for retailers in recent years. Brand aggregators have been struggling with margin squeeze since Amazon polluted their pool. And so more and more retailers are working on proprietary goods that seemingly don’t have any price pressure problems (say that three times fast).

But proprietary goods have their own set of marketing issues that tend to squeeze margin; namely, how do you drive demand for your own brands? The margins are great, but 70% of $0 is still $0. And if you create a proprietary brand there is one thing you need to remember upfront: *no one is searching for your brand*.

The nice thing about branded goods is that they already have built in demand. Paid search works great, SEO works great, social works … well, it is social. Remember, these sales are just collecting demand for the product that already exists. In other words, it’s easy (relatively).

Building demand for a product is a very different endeavor than collecting demand. And it requires different marketing than most ecommerce retailers. It requires brand marketing that creates demand. The creative is different, the channels are different and the execution is different. Once demand is created, you can turn on paid search and collect the demand as you see fit.

To start you need to have proprietary merchandise that is better in some way, shape or form for your target market. Creatively you need a campaign with a big, simple idea. And you’ll have to invest far more in the marketing, but hopefully far less in the promotional game to get the sales.

You will likely have to go offline to drive the demand. Here’s where old school catalogers missed the boat: catalogs do a great job of creating demand. But only if you’re featuring and highlighting your brands. Direct mail works. TV is the absolute superstar of brand building, but is expensive – start with radio, paying those with your core audience to mention your product. And focus on selling your new branded goods to your current customers and visitors above all else. Don’t half-ass it.

Building demand online for proprietary product is tough. Banner ads are an expensive way to build demand (bots don’t buy things). PLA’s are an opportunity, if you’re willing to investment spend.  Amazon can work, but only if you push it: a Lightning deal, invest in Amazon CPC’s on the few categories where you still can, or sell goods direct to Amazon and let them market it (questionable strategy for brand building). Everything else results in a very slow process of building a brand.

I recommend you commit to a significant investment in branded advertising that includes a strong offline component: TV, Direct Mail, Radio, etc. Advertising is like exercise, it needs to be consistent and sustained over time to be effective. You can’t measure it like a direct response marketer would or you’ll never make the investment necessary to create your own brand.

Long-term, the payoff is huge. Moving a large portion of sales to high margin proprietary brands would transform most companies. Start with the product, but no matter how great it is you can’t market it the same way you do your national branded goods.