April 16, 2015

Sports Commerce Session #2: Draft and Develop

In our second session, I describe how "draft and develop" strategies in sports are similar to "customer acquisition and customer retention" in e-commerce / retail. Click here if you do not see the video box below.


April 15, 2015

Incremental Value

Let's say I want to move 13-24 month 1x buyers to a second purchase.

How much might I be able to spend to make this happen?

In our table, the average 13-24 month 1x buyer is worth about $13.50.

In our table, the average 0-12 month 2x buyer is worth about $71.65.

Intuitively, you might say that you gain $58 of value, so you can spend a fortune.

Nope.

There are two things we need to know.
  • Actual repurchase rate of 13-24 month 1x buyers.
  • Incremental percentage that we will convert with incremental marketing activities.
  • Percentage of demand that flows-through to profit.
Let's pretend that the annual repurchase rate of 13-24 month 1x buyers is 10%. Let's also pretend that we can increase the 10% annual repurchase rate to 12% by performing various marketing activities. Finally, let's assume that 35% of demand flows-through to profit. We now have the pieces necessary to determine how much we can invest.


Look at the "Marketing Cost" line ... you could invest an additional $0.77 per customer, and if you can achieve a 20% increase in repurchase rate, the math yields more profit.

This is how a modern marketer can leverage lifetime value style metrics to improve business performance. In our example (assuming that we can truly get a 20% increase in repurchase rates by marketing more to a customer), we are able to grow the active 2x buyer file - and that's a good thing, right? These customers will spend a ton of demand next year.

Have your analytics team run this analysis for you today. If they cannot run the analysis for you, contact me (kevinh@minethatdata.com), and I'll gladly do it for you.

April 14, 2015

But A Recent Buyer Is A Good Buyer, Right?

For the most part, a recent buyer is a good buyer ... right?

Let's take a second look at the grid from last Friday.



This table measures direct-channel value for a business that has retail stores and an e-commerce website. So read down the 7-12 month direct recency column ... if the customer has never purchased from retail, the customer is worth $42.66 demand to the direct channel. But now, the customer (surprisingly) walks into the store and buys something. Everybody is happy! Everybody, that is, except for those who manage the website.

Why?

The value of the customer to the website went up, quite a bit, from $42.66 to $85.97. But the customer is nowhere near as valuable as a recent online buyer (between $141.77 and $303.42).

I know, I know, the omnichannel experts will tell you that this doesn't matter.

It matters if it is your job to forecast online sales, right?

It matters if it is your job to forecast online inventory, right?

It matters if it is your job to forecast online traffic, right?

The omnichannel movement is sweeping vital business details under the carpet. Omnichannel advocates don't care where the customer buys.

Your CFO cares deeply where the customer purchases ... where the customer purchases dictates future sales, and future sales require staffing and inventory and proper forecasting techniques ... and ... they require proper triggers/targeting strategies. In this case, the customer just bought from the store ... why send emails demanding that the customer take advantage of a free shipping offer when the customer just bought from a store?

Our future includes a full incorporation of purchases across all channels ... we encourage the customer to purchase anywhere ... but we react VERY DIFFERENTLY when the customer buys from a specific channel. The omnichannel thesis of "do everything digital" simply makes no sense in a world where we can clearly see how the customer will behave in the future.

Send me an email (kevinh@minethatdata.com) if you need assistance with grids and triggers.

April 13, 2015

Catalog Fact Check

Two examples requiring fact checks:
  1. Via the NEMOA website (click here for the article), you are told that co-ops "insist" that e-commerce brands contribute their names/transactions to the co-ops. "Insist" is an interesting word, because it gives pure online brands the opportunity to say "no", which they do (they tell me they say no), and when they say no, they get to rent the names you freely contribute - and the co-ops keep all the money. At least two co-ops sell your names to e-commerce brands. Ask a CMO at an e-commerce brand - fact check the issue for yourself! Then ask yourself why you are happy being ripped off?
  2. Via the print industry (click here for the article). The article misleading states that catalogs in the mail are down 84% since 2007 (the DMA says the total is about 40% ... so either the DMA is understating the problem or the print-centric article is overstating the problem, either way, you have a trust issue, don't you?), and then the author of the article blames you, the cataloger, for not having a strong enough presence on Capital Hill. We know the metrics are factually untrue. Catalogers struggled for two reasons ... the collapse of the global economy ... and e-commerce growth that rendered cataloging unnecessary for many customers. The reason is clearly not about having a strong presence on Capital Hill. My goodness.
There are way, way too many good, honest vendors, printers, paper reps, trade journalists, industry conferences, boutique consultancies, and independent consultants out there. Way, way too many good ones. Kind ones. Honest individuals. Folks who work nights and weekends to make sure your campaigns get out the door. Folks who work hard to make sure that there are good presentations at conferences. Their reputation should not be soiled by biased, misleading, inaccurate statements that protect the financial agenda of co-ops and/or printers.

April 12, 2015

The Masters

Some of you watched one of the four major golf tournaments during the past few days. It's labeled as "a tradition unlike any other". Yes, there's a marketing point coming ... for you ... so hang in there!

For me, the event signals the formal transition from winter to spring (unless you live in Northern New England). There's something special about putting winter in the rear view mirror, don't you think?

For those who have watched The Masters on network television for the past twenty-plus years, the event theme song is as cherished as the event itself. Click here if you don't see the box below, and enjoy Dave Loggins (yes, Kenny's brother, and if you don't know who Kenny Loggins is, go Google "Kenny Loggins Pooh Corner").



One of our loyal readers attended the event a few years ago, and passed along this image. Yes, I promise, I'm getting to a point about marketing. Please look at the image.



A Pimento Cheese sandwich folks. And it's only $1.50. Notice the Masters Logo (which you saw in the frozen frame on the video of the song) next to the sandwich ... they're daring you to try it!

Let me ask you a question. What is the product that I (Kevin) sell, the product is priced so low you have to try it, a product comparably endorsed by The Masters Logo? Couldn't name one, could you? That's a marketing failure on my behalf.

What is the product you sell, a product that is at a permanently tempting price, a product that you endorse on your website above all others, a product you dare your customers to try?

And what is the tradition you fold around that product? God knows I don't have a tradition to fold around my products.

All of us, me included, need a version of a Pimento Cheese Sandwich. I'm going to work on one. How about you join me? What is your version of the Pimento Cheese Sandwich? And what is the tradition you'll wrap around the Pimento Cheese Sandwich?

April 09, 2015

Triggers And Grids

Our future includes a shift from pure campaign-centric work to grid-centric triggers. Oh, I know, countless pundits have been telling us this for decades ... they tell you how their cloud-based machine learning application will uncover patterns you'd never anticipate. 

But the reality is that we must combine business experience with math ... unfortunately, we tend to omit the business experience portion of the equation.

Take a look at this grid ... the grid illustrates how much a customer with various recency-oriented direct-channel and retail-channel attributes will spend online in the next year:



Grids help us understand customer value. Grids help us understand whether we should change our behaviors or not.

Look down the "Direct Recency = 25 to 36 Months" column. This column shows us how much a 25 to 36 month direct channel buyer will spend online, in the next year, by in-store retail recency segments.

Let's pretend that we have an online buyer with no retail history ... that customer is expected to spend $14.51 online in the next twelve months. Now, look at what happens when the customer buys from a retail store ... the customer moves up the column, and moves into the "0 to 1 Month" recency segment. Online value increases ... from $14.51 to $37.58.

Conversely, read across the bottom row ... let's pretend that the customer buys online instead of buying in-store. Now, the customer moves from $14.51 of online value to $141.77 of online value.

The retail purchase has very little influence on online value. The retail purchase would likely trigger a different email cadence - one that encourages the customer to learn more about the store.

The online purchase has significant influence on online value. The online purchase would trigger a different email cadence - one that encourages the customer to continue to shop online.

Grids quickly become complicated ... it's hard to move beyond two dimensions. A good idea, then, is to create models that combine numerous attributes into one dimension. You predict, on an A/B/C/D/F basis, the value of the customer online, and you predict, on an A/B/C/D/F basis, the value of the customer to a retail store. Then you have a 5x5 grid ... and better yet, you have multiple 5x5 grids that show retail value, online value, and company value. Based on customer value, you trigger the customer into different marketing programs.

In the coming months, we're going to talk more about grids, about models that combine attributes, and the triggers we use to capitalize on customer behavior. The goal is to expand business knowledge ... in terms of your career, business knowledge > machine learning applications.

April 08, 2015

Sports Commerce Series: Customer Metrics

Many of our readers - especially those who follow along on Twitter, are actively involved in Sports Commerce. They perform analytics for sports teams, or they are part of sports organizations.

So I am going to do something for those folks ... each Thursday for awhile, I am going to run a series of sessions on Sports Commerce. In today's session, I will draw comparisons between Sports Analytics and Sports Commerce. Subsequent sessions will build upon prior content, as I explore how Sports Analytics Experts can generate significant profit for their teams/organizations by applying analytics techniques to their commerce divisions.

If you can see the embedded video below, please click it to view the session.



If you cannot see the embedded video, then please click here to visit YouTube to watch the session. 

If you work for a Professional Sports Franchise or a Collegiate Organization and don't have the resources to analyze your own Team Shop or E-Commerce Store, send me an email message (kevinh@minethatdata.com) and we'll talk about how I can help.

April 07, 2015

Williams Sonoma


Look at page 25, where you will observe selected financial data. Yesterday, a trade brand pointed out that their omnichannel strategy is clearly working. Let's evaluate their hypothesis. Look at the metrics for 2010 (the year before a research brand invented the term "omnichannel"), and compare the metrics to 2014. What do you see?
  • Slower growth.
  • Lowest gross margin percentage in the past five years.
  • Slowest e-commerce growth of the past five years.
  • Second slowest retail growth over the past five years.
  • If selling square footage have increased (+2.6%), then the retail growth metric (+2.4%) implies a necessary drop in comp store sales.
Clearly, expenses are being managed well, because profit as a percentage of net sales is good. And the metrics we see in 2014 are outstanding ... most retailers would beg to have metrics that look like this.

But my goodness. This isn't the outcome of an omnichannel strategy that is clearly working. This is the outcome of a company that has done things well for three decades.

Williams Sonoma is worth emulating, no doubt about it. But not because of omnichannel excellence ... for if they were excellent at performing omnichannel strategies, their metrics suggest that omnichannel excellence is resulting in a slow degradation of business performance.

April 06, 2015

Lifetime Value (LTV)

When I started working at Lands' End, back in the early 1990s, I was surprised how few companies calculated lifetime value.

When I work with companies in 2015, I am surprised how few companies calculate lifetime value.

#Sigh.

I know, I know, you don't have all the proper cost metrics and you use web analytics software that only allow you to evaluate campaigns and as a result you perceive that it is impossible to perform lifetime value analytics and you don't care anyway as long as your campaigns deliver an acceptable ad-to-sales ratio so so what?

All of the magic in your business comes from understanding how customers behave. No, not how they behave in campaigns ... but how they behave.

Do you have the table illustrated above? Do you review the table, at least quarterly? No? Why not?

The query is terribly simple.
  • Identify all customers who purchased as of April 6, 2014.
  • Segment those customers based on recency (three months increments) and life-to-date orders (1x, 2x, 3x, 4x-6x, 7x+).
  • Then, for each segment, calculate the average amount of demand spent by the customer in the next twelve months.
  • Produce the table outlined above.
How hard can that be?

And yet, there's a lot of value to be had from reviewing the table.

Notice how few high-value customers there are?
  • 0-12 Month 7x+ Buyers.
  • 0-6 Month 4x-6x Buyers.
  • 0-3 Month 3x Buyers.
That's it.

Now look at all the low-value buyers (green and blue). Notice that a first-time buyer quickly moves into low-value status if the customer does not repurchase within six months. Don't you think that's something your whole company should know? Shouldn't every employee know that you have six months to convince a first-time buyer to purchase again, or the customer will descend into low-value status, requiring you to acquire another customer? Wouldn't your marketing team want to craft programs to convert the customer to a second purchase within that vital six-month period of time?

You don't have to perform a full lifetime value analysis to do the right thing. Just replicate the table above. It's not hard to replicate the table - the queries are terribly easy to replicate. Then identify the blue/green segments above, and do something to prevent customers from falling into the blue/green segments. By doing just this small amount of work, you replicate 80% of the value of a lifetime value program. Take the table above and convert it to profit, and you are 90% of the way there. And you've done virtually no work!

If you cannot produce the table, contact me (kevinh@minethatdata.com) and I'll do it for you.

April 05, 2015

Influential Books

When you begin your career, you gobble up information ... everything is new and interesting and you are a sponge, soaking up knowledge.

If your career is measured in fifteen year thirds, then there is a point somewhere in the latter half of the first third of your career where you realize you have to find your own identity. You stop doing things the way everybody else does them, and you chart your own course (or not).




There are six books that influenced my path.
  1. Statistical Methods / Snedecor and Cochrane (click here). I have a version from 1938. The book talks about the kind of tests that modern online marketers claim to have invented. Without Snedecor and Cochrane, Google wouldn't be what Google is. Did I mention that these folks wrote about stuff back in 1938 ... stuff that digital gurus love talking about today? Maybe everything new is old.
  2. Correspondence Analysis in the Social Sciences / Greenacre and Blasius (click here). The book illustrates ways to take a simple cross-tab table in Excel and map the relationships between the rows and columns. There is no better lesson than one where you learn that complex information can be reduced to simplified information.
  3. Modelling Biological Populations in Space and Time / Renshaw (click here). The most influential book of my career. The book explains how species interact with each other ... how wolves need/eat rabbits until there are no rabbits and the wolves starve, for instance. Everything in this book relates to modern channel interactions. You learn that e-commerce needs stores, but stores don't need e-commerce ... you learn that e-commerce preys on stores, driving store performance down, causing stores to close ... stores are rabbits and e-commerce is a wolf (and by the way ... e-commerce will be a rabbit to the mobile wolf, it's coming, and e-commerce folks choose to not recognize this, to their detriment). Once you draw the comparison, your view of the world changes - you are able to see the future clearly.
  4. Permission Marketing / Seth Godin (click here). You may have noticed that everything about my business model has roots in this book. The book offered a blue print for building a small business. Still does. Mr. Godin was a beloved guru - then he refused to play the social media game of engagement (like he could engage with 400,000 readers on a one-to-one basis) and so many marketers abandoned him ... but that's their loss.
  5. The Demography of Corporations and Industries / Carroll and Hannan (click here). This book parallels "Modelling Biological Populations in Space and Time", but looks instead at how industries evolve. For me, the "ah ha" moment was how you start with a ton of small businesses ... the small businesses eventually coalesce around a handful of winners who become huge ... and those winners are then defeated by a ton of small businesses who capitalize on a new technology or change in the system ... and then those small businesses coalesce around a handful of winners who become huge. This pattern repeats ... and is in the process of happening once again (mobile).
  6. Moneyball / Michael Lewis (click here). I don't like this book because of the metrics. This book is important because of how it discusses culture. You can have all the metrics in the world, but if the culture isn't aligned, well, tough, you're not going to make progress. And here's a hint for the analytics community - you need an evangelist at a high level - people don't just accept your arguments and do what you say - the world doesn't work that way. Best of all - the book outlines how you can do everything right, and in the end, you don't succeed - and somebody with more resources steals your ideas and gets all the glory.
I think it is really important to have your own "system", your own set of beliefs that you implement where you work, and then you experience success, success that you use to further build upon your own, unique system. You need to have your own way of doing things. Of what possible good is it to be a "Google Analytics" expert or an "omnichannel expert" when you are doing things that ten thousand people can do equally well? Craft your own way of doing things, provide value, and you'll go places.