July 30, 2015

Over and Under Assorted

Both issues lead to problems.

You see the over assortment problem all the time. You used to have 10 winners and 90 contenders ... then you expand the assortment and two years later you have 11 winners and 140 contenders. This is what over assortment looks like.

Financially strapped businesses create a cycle of despair. Last year, they had 5 winners and 70 contenders ... given poor financials, they invest in fewer new items ... a year later, they have 5 winners and 55 contenders ... two years later, they have 3 winners and 45 contenders ... three years later, they are out of business.

If you are a marketer, you measure this stuff, right? It isn't your fault when productivity wanes because of assortment issues. It is your fault if you aren't measuring the dynamic. Help your merchandising team be successful. It's better to invest in the understanding of how customers purchase your merchandise than it is to invest in the understanding of how customers get to your merchandise.

July 29, 2015

A Pricing Cycle

Here's a common dynamic in my projects ... see if this happens at your company.
  1. Your average price point is $40.00.
  2. Customer response is not good.
  3. You offer 20% off plus free shipping.
  4. Customer response improves.
  5. Profit looks bad.
  6. Finance and/or Merchandising doesn't like making no $ whatsoever.
  7. Finance and/or Merchandising charges more for new items.
  8. Customer response to expensive items is not good.
  9. You offer 30% off plus free shipping.
  10. Customer response improves.
  11. Profit looks bad.
  12. Repeat 6-11.
Briefly describe what the end-game looks like in this scenario ...

July 28, 2015

Catalogers No Longer Compete Against Each Other - So I Introduce To You ... PAPER TUESDAY!!

July 28 was a popular in-home date.

Here's the thing. 

Catalogers no longer compete against each other. Catalogers are a loose federation of common brands with a shared ethos.

Just look at the covers. Dots. Discounts. Savings. Freebies. And all arriving in-home on the same day. Heck - look at the Talbots & Pendleton cover models - similar hair, both smiling.

Everything is the same.
  • Same customer list (Abacus and others and/or Private Equity shared databases).
  • Same printers.
  • Same merge/purge houses.
  • Same database vendors.
  • Same housefile modeling vendors.
  • Same email vendors.
  • Same paid search vendors.
  • Same online marketing vendors.
  • Same set of a dozen +/- consultants who make key decisions.
  • Same industry conference with similar sessions paid for by the same housefile modeling vendors and co-ops that everybody uses.
  • Same Executives who have worked at every-other company, moving every-three-years to better opportunities.
  • Same 2-3 trade journals that have covered the industry for three decades.
This isn't good. This isn't bad. This just "is".

And since it "is" what it is, we may as well recognize it and then capitalize upon it. If Amazon can create a fake holiday and generate Christmas-level business in July, and if Shop.org can astroturf Cyber Monday into a commerce holiday for online businesses, then why can't we work together to create PAPER TUESDAY?

I'll set the date ... NOVEMBER 10 IS PAPER TUESDAY ... the second Tuesday in November from this day forward will be known as PAPER TUESDAY.

PAPER TUESDAY will be the day that all catalogers work together, a day when all catalog vendors work together, pitching-in to drive sales and profit for CATALOGERS. Best of all, since all catalogers are essentially in the same family, supporting each other, each catalog brand will cross-promote the new holiday, driving business for each other. Your co-op will make sure to give you the best deals possible for names likely to buy on Paper Tuesday. Your database vendor (or co-op) will significantly discount matching of names across companies, identifying and segmenting customers that buy from 20+ catalogers a year, so that you know who the customers are that are most likely to fully embrace Paper Tuesday. Your favorite trade journals will actually support the holiday and will rally the troops via outstanding communications that you will want to read, causing readership to go up, causing more vendors to want to pay trade journalists, making trade journalists money.

Your paper rep will heavily discount Paper Tuesday catalogs, so that you can send many more catalogs and therefore build your housefile and consequently make your paper rep more money in the future.

Your printer will discount services so that you can mail deeper, making Paper Tuesday a success. Your printer will pay for television ads that tell your 62 year old target customer that Paper Tuesday is coming. All of this activity will strengthen your housefile, allowing your printer to make more money next year. Heck, your printer will recommend a small-format, eight page Paper Tuesday mailer designed to drive sales on Paper Tuesday, and they will make it reasonable for you to mail this small piece.

Your PAPER TUESDAY discounts will be better than your CYBER MONDAY discounts - and you will tell your customers this fact as well - so that your customers shop with you on Paper Tuesday and will give you their dollars before they hand over money to e-commerce and big-box retail brands three weeks later.

Your email campaigns will communicate Paper Tuesday - and will tell the customer that this is an industry-wide event. You will help your partner catalog companies ... and your catalog company partners will help you.

If you love discounts, and I know you love discounts, then discount items that Amazon does not sell. Feature those items on Paper Tuesday. Heavily promote items that the customer cannot buy on Amazon or on a big box e-commerce website. Sell the stuff that gives you a competitive advantage.

If you're going to do everything the same on July 28 in an uncoordinated manner, why not act like one industry, for one day, on November 10 (the second Tuesday of November) - and make PAPER TUESDAY the biggest day of the catalog shopping year?

Every major catalog vendor reads this blog.

Most major catalog industry consultants read this blog.

Most major catalog brands have employees who read this blog.

Many classic catalogers - names you all know and trust - read this blog.

In other words, everybody in the industry is going to see this message.

So why not go do something about it? Why not work with your industry partners, and formally cross promote something that benefits all of us?

July 27, 2015

Returns - Are You Committing Two Tactical Mistakes?

A tale of two items.
  • Item #1 = 100 units sold, $50 price, 40% return rate, 50% gross margin, $1,500 gross margin dollars kept.
  • Item #2 = 80 units sold, $50 price, 10% return rate, 50% gross margin, $1,800 gross margin dollars kept.
Which item would you prefer, if you could only run with one item?

In some of my Merchandise Forensics projects, merchandise productivity is fine, but gross margin productivity is awful ... it's awful because of returns.

Make sure your merchandising team looks at reports that evaluate return rates by item. If an item consistently exhibits high returns rates, ask yourself why you feature that item? If volume is high, then fine. But if volume is average or poor, this item is hurting profitability.

In other projects, an odd dynamic happens. The client is acquiring customers who are pre-disposed to return merchandise.

Can I tell you a brief story? It's 1993. My boss and my Director ask me to create a statistical model that minimizes catalog mailings to customers who return a lot of merchandise. I utilized the Hyperbolic Tangent Function (click here), ultimately determining customers who purchased at least three times and returned 70% or more of his/her merchandise were likely to return at least 60% of his/her future merchandise, and therefore, be unprofitable customers.

Well, I implement this model. There's a couple hundred thousand customers impacted. They no longer receive catalogs. And these customers become really, really angry. They call our contact center, asking for catalogs.

Soon enough, a contact center manager is joined at my hip. "Are you the reason this customer is not being mailed catalogs anymore?" I'd perform some research. I'd say "yes". Then I'd get yelled at. "This customer purchased five times last year, this is one of our best customers! You are an idiot!" I'd respond that this customer returned 80% of her merchandise, and therefore, is really a one-time a year buyer who costs the company $25 a year in returns processing fees. Then we'd agree to disagree.

Suppressing catalogs to that audience increased profit by $1,000,000 per year.

Well, it's not 1993 anymore. That customer has access to your business 24/7/365. The customer can buy from you regardless of your marketing strategy. So why waste company resources?

  • Do not mail catalogs to high returns customers. These customers can purchase from your website regardless. Why waste money?
  • Do not send email campaigns to high returns customers. These customers can purchase from your website regardless. Why waste money?
  • Do not utilize in-app messaging to high returns customers. These customers can purchase from your mobile presence regardless. Why waste money?
You are under no obligation to enable those who want to rip off your business.

Please, do not commit these two tactical mistakes. Do not continue to promote average/below-average items with high return rates. Do not continue to market to customers who return a lot of merchandise.

July 26, 2015

The Screen Savers

I'll bet almost none of you remember this little-watched show from 1999. Here, take a look at this episode, assuming you have nothing better to do with the next 42 minutes of your time (click here if you do not see the video box).


Pretty compelling stuff, wouldn't you say? How about that CD-R / CD-RW technology they're talking about? Or converting sound to digital? Wow. Or go to the 43 minute mark and take a look at the sophistication of the websites that are being featured.

Why in the name of all that is good am I interrupting your pending omnichannel integration meeting (#seamlesscommerce) to bring this up?

Well, I'm listening to a podcast on Nerdist ... and the guest is Leo Laporte ... the very individual co-hosting The Screen Savers way back in 1999. Click here to see what he's been up to in the past sixteen years, via Wikipedia. And here's what is interesting, folks. He moves forward. At age 58, no less. A clunky show on a cable network that no longer exists became a TV show in Canada that was cancelled ... now he earns millions per year doing a syndicated radio show ... and he earns millions with his podcast network.

The theme of the merchandise (technology) stays the same.

The topics (merchandise) change ... always new.

The channels he uses evolve ... they do not stay the same. He's using radio ... RADIO for crying out loud, and he's using podcasts. He does not adhere to an omnichannel thesis that the customer does everything, so you have to be everywhere the customer is. His customers find him ... and find him on two of the more obscure channels (radio, podcasts) out there.

I bring this up, because many catalogers are in the process of finalizing the Spring 2016 circulation plan. You look at those plans, and you see strategies that are no different than strategies conceived back in 1999 ... the Early Summer catalog on April 18, the Early Summer Remail (#costsavings) on May 2, and the Early Summer 2nd Remail (#newcover) on May 16.

It's time to think differently about our businesses. Is it any wonder the typical cataloger has a customer who averages 62 years old (often much older)? We utilize online marketing to support catalogs, utilizing a tightly integrated omnichannel strategy that pleases the 62 year old customer but repulses the 26 year old shopper. Our merchandise doesn't keep up, further repelling the 26 year old shopper. Now, this may be fine - if you're growing by 10% per year and you're printing 12% pre-tax profit, who cares what you're doing - you're doing everything right!! Unfortunately, the vast majority of catalogers are not growing by 10% and are generating 2% pre-tax profit instead of 12% pre-tax profit.

So look at the evolution of this individual ... and compare/contrast his evolution to the evolution your company has gone through. What can you learn?

P.S. The co-host in the video (Kate Botello) went in a different direction ... landing off Broadway and now co-hosting a paranormal podcast while running a web design company in Traverse City, Michigan. There are many different paths to success, happiness, and satisfaction.

P.P.S. I just re-read this post, and realized that the content is something Sheldon Cooper might be proud of.

July 23, 2015

The Omnichannel Customer Value Query

When a customer purchases for the first time, the customer has a whopping total of one purchase. This means that the customer cannot have purchased from more than one channel.

When a customer purchases for the second time, the customer may elect to use the same channel (an affiliate), or the customer may use a different channel (email). If you are a credible marketer, you probably encouraged the customer to sign up for email marketing messages, so it is very possible that you nudged the customer into a second purchase via a second channel ... even if the customer was going to purchase anyway.

At this time, an Executive may ask an analyst to run a query.
  • "Please measure how many times customers who purchased from multiple channels (affiliates, email) purchased, and compare the metric against customers who only have purchased from one channel."
The result of the query is stunning.
  • Customers who purchased from multiple channels purchased 4.3 times.
  • Customers who purchased from a single channel purchased 1.4 times.
This query is used by many, many folks who are selling products/services related to omnichannel marketing. It is lauded as proof that omnichannel marketing works.

Can you see the flaw in the query?

When a customer purchases for a first time, which segment does the customer reside in? In other words, is it possible for the first-time buyer to place multiple orders via multiple channels, and therefore, to be considered omnichannel?

No.

The query is not measuring "omnichannel" success. The query is essentially measuring loyal buyers vs. first-time buyers. The first-time buyer cannot, by definition, be in the omnichannel segment.

If you really want to see the value of an omnichannel buyer, run this query:
  • Take all customers with five life-to-date purchases, through December 31, 2014, with a recency of three months. Measure how many channels the customers purchased from, life-to-date.
  • Segment the customers ... 1 / 2 / 3 / 4 / 5 life-to-date channels.
  • Measure spend from January 1, 2015 through today.
  • Measure the profit generated by customers who bought from 1 / 2 / 3 / 4 / 5 life-to-date channels, from January 1, 2015 through today.
In this query, customers are largely equalized (5 purchases, at least one purchase 0-3 months ago ... run regression models that factor in more variables if you so desire). The impact of channel activity is mostly isolated.

What do you learn, when you run a query like this?
  • 1 Channel = $80 future value.
  • 2 Channels = $83 future value.
  • 3 Channels = $85 future value.
  • 4 Channels = $87 future value.
  • 5 Channels = $88 future value.
Now, you see that the customer who purchased from 5 channels is worth 10% more than the customer who purchased from 1 channel. That's good, but that's now what you are told the impact of multiple channels is, now is it?

Ok, now that we are armed with this data, let's run a p&l on spend over the next six months.
  • 1 Channel = $20 future profit.
  • 2 Channels = $21 future profit.
  • 3 Channels = $20 future profit.
  • 4 Channels = $19 future profit.
  • 5 Channels = $18 future profit.
Oh.

Here's what happens. Customers who purchase from multiple channels also tend to be more avid users of discounts/promotions, and tend to use channels that charge tolls (Google, Facebook, Affiliates). As a result, the marketer pays more money for multiple-channel purchases, and harvests less profit due to the discounts/promotions.

Those who are not discount/promo centric frequently see modest profit increases, so long as there isn't some sort of expensive loyalty marketing effort to force customers across channels while costing the business profit ... I see this happen all-too-often.

The two tables illustrated here explain why the best omnichannel marketers seldom make healthy sales/profit progress. We honestly are not creating omnichannel buyers ... rather, by accident, loyal buyers touch all channels eventually. The omnichannel community claims credit for the hard work of the merchandising team. The Apple store is pointless without iPhones, iPads, Macs, and the Genius Bar.

Make sense?

The most valuable customer is a customer who craves your merchandise ... the customer who cannot wait for your next email message ... the customer who must visit your website daily. This customer, by sheer accident via probability theory, will touch all of your channels.

July 22, 2015

A Contrast Between Catalog Marketers and E-Commerce Marketers

Two recent conversations illustrate the significant difference between how catalogers operate, and how e-commerce companies operate. I will outline each comment, and then not offer my thoughts about each comment. Instead, I am asking you to think - think about the downstream impact of each comment.

Catalog Marketer Comment: "We're in the process of merchandising our Spring 2016 catalogs, and we're plotting out page counts for Fall 2016 catalogs. It's important that we know what merchandise will be in the catalogs, so that we can accurately forecast segment-level demand. Then, we can get busy planning the 2016 integration schedule between the catalog and the website. We really think that our Spring 2016 assortment will be a winner with customers."

E-Commerce Marketer Comment: "Our home page and landing page algorithm identified the items that exhibited improved performance. The algorithm pushed those items to our most visited pages, growing sales by 10% on Monday."

July 21, 2015

Revenue Streams / Tolls

When you watch something on ESPN, you are part of a large toll-based ecosystem. Click here to see how much you pay, each month, even if you never ever watch ESPN. Basically, you are spending somewhere between $5.75 per month and $7.00 per month, depending upon how many ESPN channels are available to you.

Then think about what ESPN does:
  • Collect monthly money from individuals who never, ever watch the channel (eight billion dollars per year ... how much money do you collect from folks who never buy your merchandise?)
  • Collect advertising revenue from brands looking to connect with those who love sports.
  • Offer DVR-proof programming, requiring the user to watch the commercials, thereby driving up the value of the commercial, thereby allowing ESPN to collect even more revenue.
We're in an environment where we either collect tolls, or we pay tolls. We don't want to be in the latter category.

So you, the cataloger, let's look at your situation. You are being constrained by tolls, aren't you? However, you have an advertising venue that could allow you to collect tolls, right? In other words, your catalog could evolve, couldn't it? Instead of sending your wares to 1,500,000 customers forty times per year, you could use half of those catalogs to collect advertising tolls from other brands, right? Wouldn't that lower your cost structure? Wouldn't that allow you to circulate deeper? Wouldn't that allow you to grow your own business?

I know, I know, you're not going to do this. You'd never let Pinterest advertise in your catalogs (and they don't want to advertise in your catalogs, but you get the point) ... offering your customers an opportunity to pin your creative imagery on their platform. That couldn't possibly benefit your business ... toll-based revenue.

Or could it?

July 20, 2015

The Death Of An Item

Every item has a birth, and a death. Maybe that's the way everything is on Planet Earth.

Now, the life of an item is messy. Undeserving items receive disproportionate attention, and consequently, perform above their pay grade. Highly deserving items are ignored, literally dying from starvation. And as anybody knows, when a Management change happens, items die and items are born.

The key, of course, is to identify "peak life". For so many companies I work with, the curve looks something like what is depicted in the bar chart above. Often, items show significant promise, from the get-go. That promise is capitalized on ... the cataloger gives the item catalog space ... the online marketer features the item on landing pages and on the home page and in email campaigns.

The secret is to measure what happens after sales begin to decline. This relationship is different for each business. I have clients that are selling items from the 1990s - and the sales curve has yet to decline. I also have clients where the life cycle is measured in weeks/months instead of years.

I like to look at items that are in the top 5% for demand volume and/or item volume. These items typically make up 50% of your annual sales volume. Only a handful of items ... a ton of responsibility from these items! Anyway, measure where your items are on the life cycle curve above. If you notice that, year-over-year, your best selling items are increasingly aging, well, you know you have a real problem that you have to address.

July 19, 2015

Clouds / Thunderstorms

It's a Monday, and you're not doing anything productive today anyway, so take a few minutes and watch this video ... watch how all the clouds evolve / adapt / change over time.



Your business is like a cloud (no, it isn't "in the cloud" like vendors want it to be). Your business is a dynamic, changing ecosystem ... while at the same time, it is part of a much larger ecosystem ... the upper level low in the Pacific Northwest fuels the low level winds that interact with the jet stream and create severe weather across the Plains and Midwest.

Do you treat your business like a dynamic, changing ecosystem that is part of a much larger ecosystem? Well, yes and no.

In most cases, the answer is no. We treat our businesses like a snapshot. We execute an email campaign. Or we mail a catalog. We change the home page and landing pages and the retail floorset. All are snapshot executions of our business ... a picture at a point in time. Is the picture pretty? Yes? Then we succeeded. Never mind that the pretty picture becomes a tornado at a later point in time ... the picture is pretty.

Sometimes, the answer is "yes". When we change our bidding strategy on various keywords, we're treating our business like an ecosystem. When we offer 30% off plus free shipping in response to a competitor offering 25% off plus free shipping, we are treating our business like an ecosystem. Whether we positively or negatively impact our ecosystem, well, that's another story.

But the problem with business today is that we treat too many aspects of our business like a snapshot, and not like the videos shared with you in this blog post.

When we don't generate enough new, winning products, we stop fueling the thunderstorms in the video above.

When we don't generate enough new customers, we stop fueling the thunderstorms in the video above.

When we don't run the best selling items in the front of the catalog because we want to "make a statement", we stop fueling the thunderstorms in the video above.

When we put 25% off plus free shipping in an email campaign to generate more opens and clicks, we stop fueling the thunderstorms in the video above.

Do you understand the message?