reveries - hillary billings

DECEMBER 2001

"Our mission is to bring the wonderful experience of gift giving to peoples' lives," says Hillary Billings, Chairman and Chief Marketing Officer of RedEnvelope. "Why should consumers feel pressured and burdened by what can be such a special, delightful event?"

Hillary began cultivating her enlightened outlook into consumer behavior in the early 1990s, when she joined Pottery Barn. As vice president of product design and development, she molded the retailer into a true lifestyle brand, upgrading its products and recasting the catalog as a magazine. The result? Cha-ching: a billion-dollar business for parent company sales by 1996.

Next stop, Starwood Hotels & Resorts. As senior vice president of brand development and design, Hillary was charged with enriching Starwood's brands, in this case its properties. She wrapped up another lifestyle win, infusing Starwood's W brand of upscale business hotels with all the comforts, amenities and design sophisticated business travelers had at home.

At RedEnvelope, it is different. Hillary didn't discover a market void and then jump in to create a brand to address it. After two years at Starwood, she wanted to get back into retail, but ultimately a product-driven business, not real estate. She knew at that time that the Internet was going to change the retail business fundamentally, and wanted to be part of it when it was young and still evolving.

So she asked herself: "What's a good brand category to build that has a huge opportunity because it's not being well served in the marketplace, which the Internet can help uniquely position?" Gifts were the first thing that came to mind, because they’d always been a personal hurdle for her.

"The gift-giving process shouldn't be a burden, it should be wonderful," says Hillary. "That's the one thing that I think specialty retail has given to American consumers. It's all about creating a brand that makes the shopping experience really enjoyable and more than just functional, actually entertaining and fun."

Hillary thought if you could create a gift brand that solved this huge growing problem for the baby boomers and transformed it from a negative experience to a positive experience, it would be a huge opportunity. She also thought the Internet was a perfect place to build that brand because typically you think about the gifts you need to give in the middle of the night when all the stores are closed, and the Web offers the best way to attack that problem.

In 1999, Hillary was introduced to a company that was then called 911gifts.com. It was a little test pilot of an Internet business and didn't necessarily have a lot going for it except that it was positioning itself in the gift arena. When she came on board she virtually changed everything about the company -- including re-naming it… RedEnvelope.

What lessons have you learned from your experiences at Pottery Barn and Starwood Hotels and Resorts that you've been able to apply at RedEnvelope?

At Starwood, our product was the look and feel of our hotel, which was very distinctive from any other hotel company. The W hotel concept was interesting because it was targeting the same customers as the Pottery Barn customer, baby boomers typically in two-income households, in executive positions, doing a lot of travel.

These were customers accustomed to spending two or three nights a week in a hotel, who had developed a sophisticated sense of home and the comfort and style associated with home. They often weren't able to get that experience in their business hotel travel.

In the case of Pottery Barn and RedEnvelope, the products that we sell define us as a brand. I've always been interested in brands that target a sector that isn't well represented in the marketplace, an area that isn't keeping pace with consumer demand.

At Pottery Barn, in the early nineties, nobody in the specialty retail world was addressing home furnishings. The only consumer choices were to go to mass-market retailers, like department stores or to an Ethan Allen, most of which weren't providing stylish furniture. They were presenting assortments that were very mainstream and weren't very interesting. Or you had to hire an interior designer and spend exorbitant amounts to enter the stylish arena of home furnishings.

There was nothing for the consumer who didn't want to hire an interior designer or didn't have the money to, but had an interest in style that was more sophisticated than what the department stores were selling. It offered a clear path for Pottery Barn to build a business.

You've abandoned your mass media approach for more targeted initiatives. Why?

This past February, we ran our last advertising campaign. We discontinued the mass media strategy for a number of reasons. First, it was quite expensive to maintain. Secondly, we were on a track to become profitable as quickly as possible. Third, as we all know, the market turned dramatically against the dot-com sector and we had to switch gears very quickly.

We knew the catalog was our best chance to maintain desired visibility. With each new catalog, we were growing The number of pages, expanding our product set and catalogs were becoming a bigger part of our revenue base. It was also giving us the necessary branding mechanism to offset our advertising outlay.

Our mission is to really speak to the customer about the higher goal of the RedEnvelope brand, which is bringing the wonderful experience of gift giving to peoples' lives. We felt that the catalog had reached the size and the reach that it needed to in order to be able to take over for the advertising.

Plus, it was a much more efficient way to spend marketing dollars. In the early days of our brand, we were spending more than a hundred dollars per customer in acquisition costs. Today, that figure is down to less than thirty dollars per customer.

You're also supplementing your catalog effort with an e-mail marketing campaign? How’s that going?

It’s interesting -- 70 percent of our orders come via the Web, 30 percent by phone. We typically send out e-mails twice a month, always around a particular event. Whether it’s leading up to a large holiday or bringing our best gifts to consumers for the smaller holidays.

We have two sale periods each year, July and January, and we send out e-mails to support these sales. There’s plenty to introduce to the customer every couple of weeks, which has been an ongoing touch point for us with the consumer over the last couple of years. We send those e-mails out only to our customer base. We don’t send out prospect e-mails.

What have you learned from your e-mail marketing approach?

We’ve done a lot of experimenting to help determine what works versus what doesn’t. We tested a lot of small holidays and found that not all generated consumer interest. We did a big campaign around Bastille Day, which bombed. Even though it’s becoming more popular in San Francisco, we discovered it’s still a bit too esoteric for our broader audience. We tested some corporate holidays like Secretaries Day, and learned that wasn’t successful.

Right now, we’re testing e-mails with a broad brand statement rather than those tied to our product set. We’re looking for answers to some of the following: Are there better times of year than others? What’s the desired frequency of these e-mails? What kind of messages resonate best? Our next phase will be to distribute much more personalized and specific e-mails to customers more randomly. Certain e-mails would go out every day, pegged to certain customers, perhaps based on their buying history or other factors.

How would you describe your ideal customer?

Our ideal customer is a woman or man, between the ages of thirty and fifty, who lives in and around the major U.S. cosmopolitan communities. Our business is split sixty percent female, forty percent male, which is a very comfortable place for us to be. It's more male oriented than the physical retail world.

Our customers are typically interested in making a personal statement with the gifts they give -- a gift that reflects them as a giver. They want to communicate the idea that they're giving a gift that says something about them, reflecting their sense of innovation and style. But at the same time, they’re not willing to spend five hundred dollars plus on that gift, which differentiates us from other companies that skew to the luxury sector.

A recent Arthur Andersen study found that the gift giving activity of the baby boomer group averages between twenty-one to fifty gifts a year. We believe that a large percentage of that number fall in the $50 to $150 price range. We want to be the brand that they go to most often for their gifts. We do offer gifts in the higher price ranges, but focus most of our energy on this more modest segment.

We think that this price point represents everyday gift giving -- the graduation gift for a nephew, the birthday present for your grandma, all those kinds of everyday gifts that you give through the year. No, it may not be the birthday gift for your wife that you may spend more on, or the Christmas gift for your significant other. It’s all the other little gifts throughout the year that become troublesome for our customers.

How have you been able to get consumers to think about RedEnvelope beyond just holiday or event-related periods?

We focus a lot on gifts that have real meaning behind them and that are really targeted to specific occasions. The way we bring that to the consumer is evolving. Last year, we launched a spring and a fall catalog that are devoted entirely to everyday gifts, birthdays, anniversaries, new babies, and other events.

We actually have a fast growing business in the smaller holidays, like St. Patrick’s Day. That’s not because we have a lot of Irish customers but because a lot of people use the day as a way of translating the message of good luck, which is a very broad gift-giving occasion. So the idea of giving someone a little bit of luck, St. Patrick’s Day seems to be the trigger for that, which is a much broader gift giving opportunity, so that’s been growing.

Has your marketing strategy changed since September 11th?

If anything, it has reinforced the key goals we had previously established for our company. What was interesting after September 11th was that many more of our really personal, friendship-oriented gifts sold like crazy. We offer a bracelet laced with wonderful inspiring words that go around it, which we sold out of completely after the tragedies. Similarly, our friendship candle series sold out right away. We realized that gifts that offer a special meaning to people are really important for them.

We realized that companionship and generosity are transcendent needs of consumers, now more than ever. September 11th was a bleak day for us all. But, business picked right back up soon thereafter and has been quite strong. The other interesting thing that happened was that our Halloween gifts sold out in September. Customers appeared to be anxious to start celebrating again and Halloween represented the next time to celebrate.

Will this sentiment be reflected in the type of gifts RedEnvelope sources in the future?

Yes, absolutely. Right now we’re in the midst of Mother’s Day and Father’s Day 2002. We have some wonderful poems about motherhood and gifts that incorporate these poems. Having gifts that really speak to mom that aren’t just, here mom, here’s a nice necklace.

We recently received a letter from a woman who told us how she gave cookies, which we had adorned in a baseball-themed gift package, to her grandfather, who was in the hospital dying of cancer. She told us how much he loved baseball and how important this gift was; it was really her last gesture to her grandfather before he died. She told us how important this little box of cookies was in the symbolism of her relationship with her grandfather. We read this letter to our employees at the quarterly meeting and most were in tears.

You realize that something seemingly inconsequential like a little box of cookies can have enormous meaning in the process of the gift exchange. Gifts, when done well, can mean so much to the human experience. That’s something that I’ve never experienced in my career before.

It’s very rewarding. It gives the company an important goal to be working towards every day. It makes RedEnvelope a special place to work because people are very cognizant of the fact that the little things they do every day can make a huge difference to people at the end of the process.