January 19, 2017

Pricing, Profit, Who You Are

There are many ways to run a successful business.

Facebook makes a few dollars from a billion users.

I earn $25,000 from a handful of users.

For many of my clients, the approach has always been to earn a lot of profit from a small number of users. The math goes something like this, per order (before subtracting marketing costs).
  • Net Sales = $100.
  • Cost of Goods = $40.
  • Gross Margin = $100 - $40 = $60.
  • Add Pick/Pack/Ship Revenue = $15.
  • Less Pick/Pack/Ship Expense = $10.
  • Contribution = $65.
Amazon and other brands decided to play a different game.
  • Net Sales = $80.
  • Cost of Goods = $60.
  • Gross Margin = $80 - $60 = $20.
  • Add Pick/Pack/Ship Revenue = $5 
  • Less Pick/Pack/Ship Expense = $10.
  • Contribution = $15.
Amazon was willing to generate $15 of contribution per $80 order, allowing their value proposition to be more valuable to a lot of customers.

You were willing to generate $65 of contribution per $100 order, causing your proposition to be valuable to a small number of customers.

Always remember that Amazon could generate a profit anytime it wanted to - instead it invests future profits in current operations.

Here's another interesting tidbit - Amazon spends +/- 5% of net sales on marketing. A typical catalog client might spend between 25% and 30% of net sales on marketing.

In other words, we have consciously chosen who we are. A traditional catalog brand chose to generate hefty gross margins, and then spent gross margin dollars on catalog marketing. Amazon chose to spend minimal dollars on marketing, instead spending on future technology and merchandise assortment, allowing Amazon to appeal to a large audience willing to generate small amounts of profit.

The problem arises when the traditional catalog brand and Amazon intersect on comparable merchandise. The customer will generally pick the better value proposition (Amazon). Hence, their p&l isn't impacted by this decision.

But your p&l is impacted by this decision. Your sales decline, and your fixed costs don't change. Bad news. So you change your value proposition - 20% off plus free shipping.
  • Net Sales = $80.
  • Cost of Goods = $40.
  • Gross Margin = $80 - $40 = $40.
  • Add Pick/Pack/Ship Revenue = $0.
  • Less Pick/Pack/Ship Expense = $10.
  • Contribution = $30.
Just like that, you're making less than half as much per order as you did in the glory years. And worse, you "cheated" - you went from a Tier 1 strategy to a Tier 5 + Tier 6 strategy ... now you cannot go back to Tier 1 without a negative hit to net sales.

Will you generate more than 2x as many orders to make up the contribution loss? Maybe.

Now we've changed "who we are". We're heading toward lying about prices. Next year we need to be 30% off to generate the same net sales level, then 40% off, then the 50% off bloodbath of 2016.

Think about iOS vs. Android for a moment. iOS is able to charge more for the exact same device, allowing Apple to print money. Yes, Android has market share, but of what value is the market share if there isn't much profit associated with it? Apple has a minority market share and a majority of the profit.

This is the decision we're all being forced to make, courtesy of Amazon.
  • Do we want to be iOS, small market share / tons of profit?
  • Do we want to be Android, large market share / minimal profit?
Who do we want to be?

When we offer 30% off plus free shipping, we're trying to have it both ways ... we want the profit of iOS and the market share of Android ... we're buying time hoping to find a path to iOS in the future.

Wal-Mart went large market share / minimal profit. Retail adapted.

Amazon went large market share / minimal profit. You will adapt.

But in order to maintain a large amount of contribution per order, something has to change.
  1. You either shift on the Pricing Tier strategy and consistently employ a strategy that yields many customers and minimal profit per customer.
  2. Or you create a Unique Point of View that yields a Low Cost Customer Acquisition Program that allows you to generate a ton of contribution per order (but with a minority of customers).
In other words, you pick iOS or you pick Android. 

What we've been doing for the past five years is an average of the two ... and that strategy isn't working.

We have to decide who we are.

January 18, 2017

Competing With Amazon

Recall our eight pricing tiers (you might have 38, that's fine, there's no right/wrong answer to this)?
  1. Full Price.
  2. Liquidations.
  3. Specials.
  4. Rewards.
  5. Shipping Promotions.
  6. Promotions.
  7. Inconsistent Pricing.
  8. Lies.$
Here's a question I frequently receive from companies competing with Amazon.
  • "How do I compete with Amazon?"
Good question!

Amazon largely combined product depth with (1) (3) (4), with low prices being core to (1). Better yet, they use multiple sellers of the same item to drive down price ... the sellers may all leverage (1) as a strategy, but then the customer sees a very low price for (1), which accomplishes the same tactic that an individual brand leverages with (6).

Therein lies the problem. We cannot compete with Amazon because we don't run a marketplace where competition drives down the apparent "full price" of an item.

We see the impact of this tactic in Amazon Prime. Amazon can sell at full price (1) albeit a low price because of marketplace factors (in many cases), which drives down the price, allowing Amazon to charge for shipping (Amazon Prime), which acts as a reverse of (5), a "(-5)" if you will. But the net of (1) and (5) and fast shipping and a broad merchandise assortment trumps anything we (as an individual brand) can do.

In other words, we pay $100ish up front for Amazon Prime, then we order 50 times a year yielding $2 for shipping. When we buy a widget ...
  • We pay $49.99 for the Widget.
  • We pay $2.00 for Shipping.
  • We get the item in two days.
  • Cost of goods is $30.
  • Amazon might make $12 after factoring in a $10 shipping cost (49.99 - 30 + 2 - 10).
Now, our individual brand is selling the widget for $60 with a $30 cost of goods. And we used to charge $15 for shipping that cost us $10. So we used to make (60 - 30 + 15 - 10) = $35 on this item.

So we run a 20% off promotion in order to "compete" with Amazon. $48 - $30 + $15 - $10 = $23 profit per item. We need a 52% increase in unit volume to overcome the loss in profit.

But shipping isn't competitive either. So we offer 20% off plus free shipping. $48 - $30 + $0 - $10 = $8. We're making $8 per item, meaning we have to sell 338% more items to overcome the loss in profit. Well, that ain't happening, is it?

Worse, we're at 20% off plus free shipping, so we've destroyed our ability to sell at full price. We broke our promise and we lost money in the process.

So the secret to competing with Amazon isn't to compete with Amazon, because you can't compete with Amazon. You have to do something fundamentally different.

You could outsource commodity items to Amazon and let them take 30% off the top (which is not fundamentally different than a 30% ad-to-sales ratio). You become a supplier to Amazon, a vendor if you will.

Or you could move into rewards (4) and create compelling programs that enable you to give benefits that the customer does not receive from Amazon.

This is why I consistently speak about creating a Unique Point of View that results in Low Cost Customer Acquisition Programs. We have to do stuff that is outside the realm of Amazon, stuff that allows us to charge a premium. And I realize this is risky stuff that is not likely to work. But Amazon is using the Tier strategy above to lock you out of subsequent business from customers. So you have to do something different, something outside of the Tiers outlined above.

January 17, 2017

Breaking a Promise

Yesterday, I talked about eight pricing tiers (you might have 28, who knows, no right/wrong answer here).
  1. Full Price.
  2. Liquidations.
  3. Specials.
  4. Rewards.
  5. Shipping Promotions.
  6. Promotions.
  7. Inconsistent Pricing.
  8. Lies.
It has been my experience that companies that break a promise across pricing tiers are companies that are set up for long-term struggles.

Think about JCP. They moved down the chain, focusing primarily on (6) and (8) for success. Over time, they built a customer base that loved (6).

Then JCP broke the promise. They offered everything at full price (a low price, but still, the low price became the full price). Sales dropped 30%.

Notice that sales didn't (and haven't) recover when JCP went back to business as usual.

You could look at Lands' End under Sears ownership ... they promised to never artificially inflate a price to create a sale ... Sears undermined that strategy, moving the company from (1) to (3) and (5) and (6). Once you move a customer down the pricing tier hierarchy, it is very difficult to move the customer back up to the top of the hierarchy.

January 16, 2017

The Eight Tiers of Pricing

Ever feel like Amazon is putting their big thumb on top of your comparatively tiny business? Yes? Well, that's the impact of pricing and merchandising strategy.

Based on my experience, there are Eight Tiers of Pricing. Your mileage will vary. Companies happily pick and choose from each tier.

Tier 1 = Full Price. This, of course, is my favorite tier. It is the realm of honesty. You have a price, you honor your price, and you do not cheat prior customers who may have paid more. You'll see a lot of full price activity among companies that have a "healthy brand". In other words, if your company is respected and customers trust who you are and your company behaves in a consistent manner, you'll be able to charge full price for your products/services. By the way, full price may well mean low price (Wal-Mart, Amazon).

Tier 2 = Liquidations. When you buy 10,000 widgets and the customer only purchases 7,000 widgets, you have to do something with the remaining 3,000 widgets. This is where liquidations come into play. The $49.99 widget is ultimately sold for $29.99. This is a necessary tier, but a dangerous tier. The temptation, of course, is that you get to see how well an item sells when it is discounted. This causes the business leader to "think strategically" about what "could" happen if prices were always low, or what
"could" happen if a promotion was applied to a purchase.

Tier 3 = Specials. This is like going to your favorite restaurant and finding out that Prime Rib is $34.95 instead of $39.95 because it is Valentine's Day. It has been my experience that the most successful clients I work with leverage a combination of Tier 1, Tier 2, and Tier 3 in their core strategy, with Tier 3 applied to specific items at specific times.

Tier 4 = Rewards. Think about flying on United, for instance. You earn miles, and after you earn "x" miles, you are rewarded with perks - maybe a free upgrade to first class, maybe a free flight (conditions may apply). Regardless, the "brand" maintains pricing integrity while allowing best customers to pay less. Proprietary Credit falls into the Rewards category - the customer gets a perk for using Proprietary Credit (i.e. pay later or points or whatever). Gamification falls into rewards - download an app and score 10,000 points and you unlock something or you purchase in-app allowing you to perform better - all forms of rewards.

Tier 5 = Shipping Promotions. For e-commerce, of course, but free shipping is a fundamentally different tier because it does not impact the price of the item being sold but instead discounts a service provided to the customer. Many companies offer free shipping. Amazon does the opposite, tying fast delivery to paid shipping.

Tier 6 = Promotions. Ah yes! The realm of the modern retailer. 30% off all Outerwear, today only! Then tomorrow all merchandise is 40% off. Promotions destroy pricing integrity, and worse, promotions train the customer to shop when promotions are offered. Early on, promotions work for the brand. As time passes, the brand works for promotions. Sometimes promotions play a valuable role - giving a new customer 20% off a cable contract if the customer signs up for a year, or by bundling services (internet + cable). But in 2017, promotions are more a reflection of brand health than a strategic marketing tactic.

Tier 7 = Inconsistent Pricing. You'll see this in car sales and you'll see this in vendor services. Go talk to Adobe about pricing for a web analytics solution. Do you see transparent pricing posted anywhere (click here)? It's always fun to learn that Client #1 paid $88,000 for the exact same solution that Client #2 paid $58,000 for ... and each client is the same size. The seller intentionally squeezes profit out of "dumb" customers. Or worse, go to Wal-Mart sometime. This happened to me last week. A ten pack of batteries was $6.47 in the battery display, but was $6.88 next to a toy that required the batteries. Amazon leverages inconsistent pricing. Hotels are big culprits of inconsistent pricing, as are airlines.

Tier 8 = Lies. Lies are common in marketing (often called a "brand story" instead of a "lie"). Lies may include the $89 widget that is sold for $19.99 (but wait, there's more ... we'll give you two widgets and a wudget for just $19.99, plus shipping and handling ... then we learn that "handling" is $8 and we have to wait 4-6 weeks for delivery). Nobody is buying the item for $89.

I'm sure there are countless examples that I missed. But this is how I like to think about pricing. It's been my experience that a company can be healthy operating in any tier, as long as the company is consistent about the tiers they operate in. Those old TV commercials (but wait, there's more) worked because the brand always operated in Tier 8.

More on the topic tomorrow.

January 15, 2017

It's Time!!

It's time for the next run of The MineThatData Elite Program!!

Have you been wondering if you are getting accurate information about what happened in October, November, December, and January (to date)? Some sources tell you business was great. Press releases tell you that traditional retail is struggling. Amazon is smokin' hot.

By participating, you get to see how you stack up against other participants, in an anonymous fashion.

For the cost of a Woodside Research white paper on the future of omnichannel machine learning in a mobile world dominated by social shopping, you'll get to see actual data about how actual companies fared.

What would stop you from participating?

Contact me now (kevinh@minethatdata.com) to join before February 1. Data is due by February 17, and the analysis will be delivered by February 25 or sooner.

January 14, 2017

Are You In Phoenix In February?

If you are within a few hours of Phoenix in February, let's get together and talk business. Send me an email (kevinh@minethatdata.com) and we'll pick a time to get together.

January 12, 2017

Gliebers Dresses: Roger's Dresses

Yes, this is part two of this episode. And if you don't like business fiction, then read this article about how Macy's spent a decade destroying their business (click here).

Setting:  The Gliebers Dresses Executive Conference Room. Meredith Thompson is conspicuously absent.

Glenn Glieber (Chief Executive Officer): Well, Meredith isn't here, but we should get started. The document hanging on the wall tells us we have to start meetings on time.

Pepper Morgan Pressley (Chief Marketing Officer): We're meeting because of the fit Meredith threw yesterday. She should be here.

Lois Gladstone (Chief Financial Officer): She'll be here. I saw her meeting somebody at the security entrance.

Roger Morgan (Chief Operations Officer): Is she meeting somebody from Woodside Research? How come I wasn't told?

Lois Gladstone: Meredith was really hot yesterday.

Pepper Morgan Pressley: It's like Roger punched her in the solar plexus.

Lois Gladstone: Well, it's like the customer punched us in the solar plexus. You can't keep printing eight hundred dollars of profit a year and think everything is just fine. It is ok for Roger to recommend changes.

Roger Morgan: It is?

Pepper Morgan Pressley: It would be nice if the ideas were your own ideas.

Roger Morgan: Nobody listens if the ideas are my own. That's why I promote the reputation of a talented research brand. A real Leader leverages the ideas of a Thought Leader. Then you have somebody to blame if things don't work out.

Meredith Thompson walks into the room with an unidentified man wearing a three-piece suit. The man carries an old-school / worn leather briefcase. Meredith and the man sit down.

Roger Morgan: This dude doesn't work at Woodside Research.

Meredith Thompson: I thought I'd bring an old friend into the room.

Pepper Morgan Pressley: Why is Winston Jennings here?

Meredith Thompson: For those of you who don't know him, this is Winston Jennings, long-time catalog branding expert. He consulted with us back in 1988. And 1991. 1994. 1998. 2002. 2003. 2006

Winston Jennings (Catalog Branding Consultant): 2005.

Meredith Thompson: 2005. 2008. Then we stopped bringing Winston in.

Pepper Morgan Pressley: That's about the time Roger started trusting Woodside Research.

Roger Morgan:  Bingo!

Winston Jennings: Anyway, I told my daughter Haylee to have fun at her sixteenth birthday party and I got on the first plane I could get on when Meredith told me that you were thinking of selling on Amazon. I guess my first question is, "what is wrong with you"?

Lois Gladstone: We made eight-hundred-and-twenty-four dollars of pre-tax profit last year.

Winston Jennings: That's better than most of my client base. If I were grading you on a curve, I'd give you a B-.

Glenn Glieber: Why thank you!

Lois Gladstone: No, no, no. That's not good enough. We need to generate ten percent pre-tax profit if we ever want to accomplish our goals.

Winston Jennings: Those are lofty goals!

Lois Gladstone: No they're not.

Roger Morgan: So you don't like the idea of selling on Amazon?

Winston Jennings: Of course not. It's not a best practice.

Roger Morgan: It's simple. We ship products to Amazon. They do all the hard work, and they collect about 35% of the sale price. On a $60 dress with a $25 cost of goods, we're looking at giving Amazon $21, we get $14, and then it will cost about $5 to ship the item to Amazon. We generate $9 variable profit on $60 sales. Tell me what the downside is?

Lois Gladstone: I like it!

Winston Jennings: Well, you've given Amazon control over your business for one. It's their customer, not your customer.

Meredith Thompson: Go Winston, Go Winston, Go Winston!!

Roger Morgan: We get name and address. That's not bad. And profit. That's important, too.

Winston Jennings: Are you going to sell the same items on Amazon and in your catalog?

Roger Morgan: No. Well, unless Meredith blocks me. Then I may have to sell the same stuff.

Winston Jennings: See, folks. See? Here goes the death spiral. You pull those items out of the catalog and next thing you know, you lose all of your postage and printing discounts. You lose out on cross-shopping. You sell a portion of your assortment. All of this brings your circulation levels down. Your vendor partners aren't going to like any of that.

Lois Gladstone: Who cares what our vendor partners think? We run our business for our purposes. Last year, marketing vendors earned thirteen million dollars off of the execution of our business. We earned eight-hundred-and-twenty-four dollars. Shouldn't we prioritize our return on investment over the thirteen million we pay marketing vendors?

Meredith Thompson: The way you word that makes it sound really bad.

Lois Gladstone: It is really bad. Why do marketing vendors get to make thirteen million from operations and we make nothing?

Winston Jennings: It's not the fault of vendors that you aren't profitable. It is your fault. Be accountable.

Pepper Morgan Pressley: You might want to show us a bit more respect.

Winston Jennings: I call 'em like I see 'em. That's the job of a consultant. 

Pepper Morgan Pressley: What should we be doing better?

Winston Jennings: Follow best practices. Do what your vendor partners tell you to do.

Pepper Morgan Pressley: Mother of God.

Winston Jennings: You need to protect your brand. This is YOUR customer. Why would you ever outsource customer management to Amazon?

Roger Morgan: Because they are better at managing customers than we are.

Winston Jennings: Nonsense.

Roger Morgan: They sell a hundred billion dollars of stuff a year. We generate eight hundred dollars of profit.

Meredith Thompson: I'm not selling them my merchandise.

Roger Morgan: Then don't. Sell me your merchandise.

Meredith Thompson: What?

Roger Morgan: If we sell a dress for $60 and it costs us $25, then let me buy the dress from you for $28. You make $3 by selling the dress to me. I subtract the $21 I pay to Amazon and the $5 I pay to ship merchandise to Amazon and the $28 I pay you, and I get to keep $6.

Lois Gladstone: We get to keep $6.

Roger Morgan: No, I get to keep it.

Meredith Thompson: Why?

Pepper Morgan Pressley: I see where he's going with this.

Meredith Thompson: I don't.

Pepper Morgan Pressley: He's going to view this as a separate line of business. Or worse, his own brand.

Roger Morgan: You know me well.

Lois Gladstone: Are you saying that this is a new brand? Like "Roger's Dresses"?

Meredith Thompson: Don't you dare.

Roger Morgan: I like the name!

Lois Gladstone: Roger's Dresses!!

Roger Morgan: As a startup, I could get money from the sharks on Shark Tank!

Meredith Thompson: No, we're not doing that.

Roger Morgan: We're not doing Shark Tank again?

Meredith Thompson: I can't let you start your own business on Amazon with my merchandise.

Roger Morgan: Why not?

Meredith Thompson: Because it is MY merchandise!

Roger Morgan: I'd buy it from you, making it MY merchandise!

Pepper Morgan Pressley: I can't believe I'm saying this, but I agree with Roger.

Lois Gladstone: Me too. Meredith, you'll make more money selling merchandise to Roger than you'll make selling it under the Gliebers Dresses name.

Winston Jennings: What is wrong with you people?

Lois Gladstone: We made eight-hundred-and-twenty-four dollars of profit last year. That's what is wrong with us. Something needs to change.

Winston Jennings: Don't you understand? You are moving away from the catalog business model. You can't do that! Vendors depend upon you. What happens if everybody starts to make the kind of decisions you are thinking about? Think about the vendors. The vendors, folks. Think about them. They're the backbone of the industry.

Roger Morgan: Then vendors make less but brands diversify and the expense structure shifts away from vendor support to Amazon support. In some ways, it's like Amazon does free marketing for Roger's Dresses.

Glenn Glieber: I love free marketing!

Meredith Thompson: Winston, you were supposed to talk everybody out of this. Now we have a new brand. You are welcome to leave.

Winston Jennings: You don't have to implement Roger's Dresses. Just don't sell your merchandise to him.

Roger Morgan: I'll go directly to Meredith's vendors. Then I don't have to pay a commission to Meredith.

Winston Jennings: You shouldn't have silos.

Roger Morgan: Amazon has Amazon and Zappos. Both sell the same stuff. Why is it ok for Amazon to have silos but we shouldn't innovate?

Winston Jennings: This isn't innovation. This is cheating. Do the hard work to get your catalog ducks in order.

Roger Morgan: Roger's Dresses. I can't wait to design a logo.

Pepper Morgan Pressley: Oh brother.

Roger Morgan: Two day free delivery. I can't compete with that at Gliebers Dresses.

Meredith Thompson: It's your job to compete with Amazon!!

Roger Morgan: If you can't beat 'em, join 'em!

Pepper Morgan Pressley: I liked the idea until it became Roger's Dresses. Why do I have a feeling this isn't going to end well?

January 11, 2017

Gliebers Dresses: Amazon

Yes, this is business fiction. If you don't like this stuff, why not click here to read about the brutal economics of food delivery.

Setting: The Gliebers Dresses Executive Conference Room

Glenn Glieber (Chief Executive Officer): Well, it's our first get-together of 2017. I love January. It's a time for renewal, rebirth, and returns!

Meredith Thompson (Chief Merchandising Officer): Lois, you look like you had too much fun again last night. Is something wrong?

Lois Gladstone (Chief Financial Officer): I just put together the profit and loss statement for 2016, and frankly, it's a sobering document.

Pepper Morgan Pressley (Chief Marketing Officer): Did we lose money?

Lois Gladstone: Net sales ended up at $50,200,000.

Meredith Thompson: That means we get a bonus. Sales were flat!

Lois Gladstone: Gross Margins were only 39%, fueled by persistent 40% off promotions in November and December.

Meredith Thompson: Oh oh.

Lois Gladstone: Marketing expenses were up to thirteen million dollars, twenty-six percent of net sales.

Meredith Thompson: Pepper, geez.

Pepper Morgan Pressley: We could have gone to 60% off, or we could spend a ton on circulation and paid search to move the stuff nobody wanted to buy. I chose the latter.

Meredith Thompson: People want to buy my stuff. We're just not reaching the right people.

Pepper Morgan Pressley: Right. New item sales were down 27% from last year, and that's at 40% off, a sure sign people loved it.

Meredith Thompson: Do you have a problem, Pepper?

Lois Gladstone: Stop it, both of you. Roger hasn't even opened his mouth yet and we're already at each other's throats.

Roger Morgan (Chief Operations Officer): What?

Lois Gladstone: After you back out pick-pack-ship expenses and fixed costs, we made a profit of eight hundred and twenty-four dollars.

Meredith Thompson: Ha! We made money. That means our bonus payments are going to be 25% of salary. Ohhhhhh boy.

Glenn Glieber: You mean we worked are rear ends off all year long and all we have to show for our efforts is eight hundred and twenty-four dollars?

Lois Gladstone: If we hadn't delayed payments to key vendors, we would have lost money.

Meredith Thompson: Twenty-five percent of two-hundred and fifty-thousand dollars is enough to put a new roof on the house.

Pepper Morgan Pressley: Did you just say you make two-hundred and fifty-thousand dollars a year?

Meredith Thompson: Um.

Pepper Morgan Pressley: Must be nice to be a merchant. Sounds like you merchants are put into a higher pay grade, just like the Information Technology folks.

Roger Morgan:  Before we lambast Meredith, let's consider what I have in my hand. This is a report from Woodside Research, priced at $1,495 before our generous 50% off loyalty discount.

Pepper Morgan Pressley: So we're not the only company who has to discount to stay competitive, huh?

Roger Morgan: The report strongly suggests that brands are now suffering from Amazon's amazing scale, and that the only way to beat Amazon is to join forces with Amazon.

Lois Gladstone: Oh here we go.

Roger Morgan: The experts at Woodside Research suggest that we outsource all of our commodity based items to Amazon. They suggest that we let Amazon do the marketing and selling, and we just earn a portion of the gross margin dollars. The report suggests that this is the only path to profitability for established brands being squeezed by Amazon.

The room is silent.

Roger Morgan: This is the part of the program where you typically tell me I am an idiot.

Lois Gladstone: Tell us more.

Roger Morgan: Really?

Lois Gladstone: Go.

Roger Morgan: Woodside Research suggests that traditional catalog brands give commodity items over to Amazon. Say the item has a cost of goods of $25, and sells for $60. Let Amazon fulfill the item and let them collect around 30%. That sixty dollar item yields $42, subtract the $25 cost of goods, and we take home $17. We each profit at about the same rate.

Meredith Thompson: I don't like it. I don't like it at all.

Roger Morgan: What's not to like? If we sold five million dollars a year, we'd take home $1.4 million of gross margin, and we wouldn't have fulfillment or marketing costs or an increase in fixed costs. It would be like free marketing.

Glenn Glieber: I love free marketing!

Meredith Thompson: No, it wouldn't be.

Roger Morgan: How is it not like free marketing? We don't have to do anything.

Lois Gladstone: I can't believe I'm saying this, but I'm with Roger on this one.

Meredith Thompson: You fools. I spent forty years, my entire career building a catalog brand. You are asking me to hand that over to Amazon? You want Gliebers Dresses to be a supplier to Amazon, not unlike Dockers is to Macy's?

Roger Morgan: Just the commodity-based stuff that we're already competing with Amazon on. All of our special styles, everything that is unique to Gliebers Dresses, we'd keep selling that on our own.

Meredith Thompson: You are a putz. Don't you understand anything about printing efficiencies? If we outsource the commodity-based stuff to Amazon, then we're left with a 48 page catalog and we don't get the printing and postage discounts we deserve.

Roger Morgan: But we make more money.

Lois Gladstone: Yeah!

Meredith Thompson: No we don't. My assortment is meant to be sold as a collection. You are splitting my collection in half, and you are trusting a bunch of eggheads at Amazon to know how best to sell half of my collection.

Pepper Morgan Pressley: The politically correct term is geeks. Not eggheads. Geeks.

Meredith Thompson: They're idiots.

Pepper Morgan Pressley: You've never even met anybody from Amazon!

Meredith Thompson: I will not hand my brand over to a bunch of kale-loving, rain-drenched, latte-swilling millenials who only care about making an $18 commission on every item they sell so that they can purchase a $900,000 fixer-upper on Queen Anne Hill.

Roger Morgan: Nothing has to change, Meredith.

Meredith Thompson: Normally I just reject your ideas out of principle, Roger. But this one is a non-starter. You are killing the catalog.

Roger Morgan: Who cares if we are killing the catalog?

Meredith Thompson: What are you talking about? The catalog IS Gliebers Dresses. End of story.

Roger Morgan: The catalog is a selling channel, no different than an affiliate or Google.

Meredith Thompson: Are you certain you weren't concussed over the New Year's Holiday?

Lois Gladstone: Meredith, be nice.

Meredith Thompson: Oh go out and party this evening. I heard it is Thompson Twins night at Carter's Pub.

Pepper Morgan Pressley: Maybe Meredith isn't articulating this in the kindest way, but she has a valid point. Meredith is asking us to define who we are.

Lois Gladstone: What do you mean?

Pepper Morgan Pressley: Meredith is asking if we are a cataloger who sells merchandise, or if we are a merchant who leverages opportunities? And she is suggesting that we are a cataloger who sells merchandise.

Meredith Thompson: That's exactly who we are.

Pepper Morgan Pressley: But Roger is asking what the best path to relevancy is?

Roger Morgan: I'm really asking us to do what Woodside Research tells us to do. That's why we pay them the big bucks.

Pepper Morgan Pressley: So who are we?

Meredith Thompson: We are not a supplier who cuts jobs in rural New Hampshire so that city liberals in Seattle can get rich.

Lois Gladstone: Now come on Meredith.

Meredith Thompson: How would we be any different than a company that outsources work to Indonesia? We're just outsourcing it to elitists in Seattle.

Lois Gladstone: You already outsource most of your merchandise assembly overseas. You did that twenty-five years ago!

Meredith Thompson: But this is different. This impacts the catalog!

Lois Gladstone: This isn't any different. Twenty-five years ago, you couldn't afford to pay the good people of New Hampshire, so you outsourced stuff to China. Now we can't afford to pick/pack/ship and market here in New Hampshire, so we're considering outsourcing that to Amazon.

Meredith Thompson: Nobody is considering anything. We are a cataloger, and we're not outsourcing our rural New England heritage to urban elitists on the other end of the country. They have no idea who we are and what we stand for.

Lois Gladstone: We stand for a company that made just a bit over eight hundred dollars last year.

Glenn Glieber: Ok, ok. We've talked enough. 

Meredith Thompson: No, we haven't. This isn't a five minute discussion.

Glenn Glieber: Fine, we'll pick up the discussion tomorrow.

January 10, 2017

Fertilizer and Water

When you plant a garden, do you fertilize it? Or do you just "execute" and hope things grow? Do you water your seedlings or new plants?

This brings me to your marketing campaigns and marketing strategy. Do you just "execute" and hope you sell stuff? Or do you fertilize your campaigns? Do you water your campaigns?

I'm not talking about 40% off plus free shipping - that's cheating. Do you do the hard work to make sure that your campaigns will actually grow and thrive?

This is the essence of the low cost customer acquisition programs I'm talking about. Not payment to a vendor. Instead, I'm taking about fertilizing and watering. Your creative team is the fertilizer. Your marketing team is the water. Your seeds are the merchandise. They all work together.

What Merchandise Do Best Customers Purchase?

Here's our customer file.

Are there any product categories that align with the West-Southwest alignment of best customers?


Here is Category 12.

And Category 19.

So we know that Category 19 (in particular) skews to the most loyal buyers. This happens in so many projects - there is a product category that loyal / long-time buyers love and the brand cannot get away from this category. It's a dynamic we all need to know and understand.

How about newbies? What do they buy?

New customers align with Categories 13/20.

Best customers align with Categories 12/19.

So now you know how your customer file is configured.

Ask your analytics guru to run this analysis for you.

And if your analytics guru balks at your request, contact me (kevinh@minethatdata.com) and I will append this information to a hybrid Diagnostics / Merchandise Forensics project.

January 09, 2017

A-Commerce Replaces E-Commerce

I could be really, really wrong about this.

Really, really wrong.

But I think we've found what we are migrating toward ... we thought it was to mobile/social, and that (me included) was wrong..

Think about this ... 15 years ago, E-Commerce was in the process of replacing Catalog Marketing. In other words, they keyboard replaced paper.

Today ... A-Commerce (Alexa/Amazon and voice via Siri/Google) is in the process of replacing E-Commerce. In other words, voice is replacing the keyboard.

15 years ago, those being replaced (Catalogers) quickly responded by tethering the old business model to the new business model (multi-channel and later, omnichannel). As you know from experience, tethering is a short-term solution that misses the long-term trend.

Today, those being replaced (E-Commerce) are responding by tethering the old business model (E-Commerce) to the new business model. The problem, of course, is that Amazon / Google / Apple control voice, Amazon controls a third of E-Commerce, and Google / Facebook control traffic. So A-Commerce is fundamentally different than E-Commerce in that gatekeepers control voice. So even if you are a classic E-Commerce brand with an A-Commerce strategy, you have to go through a gatekeeper to employ the A-Commerce strategy, thereby weakening your brand while strengthening the gatekeepers.

This is why A-Commerce is different than E-Commerce. In E-Commerce, you largely controlled your experience. In A-Commerce, the gatekeepers control the experience. This makes having a Unique Point of View even more important than before.

How do you think A-Commerce will evolve? Send me a message (kevinh@minethatdata.com). I'll publish good responses.