September 30, 2014

Catalog vs. E-Commerce Annual Repurchase Rates

There are two issues that persist in the work I perform for clients. One, of course, is Merchandise ... a nearly forgotten concept in modern marketing. 24 of the past 29 Merchandise Forensics projects illustrated a merchandising challenge that is holding back the business.

The other issue, of course, centers around a fundamental misunderstanding about customer purchasing habits.

Look at this graph. Here, we measure the annual repurchase rate of customers as the customer moves from a first-to-second purchase, then a second-to-third purchase, and so forth. The blue bars represent total repurchase rates (mail + phone + e-commerce) for catalog business models. The green bars represent total repurchase rates for e-commerce-only business models.

What do you observe?

You should observe two things that cause you to think carefully about your business.

First, and most obvious, is the fact that catalog business models are far more efficient at converting a first-time buyer to a second purchase. This is a consistent trend that I observe across my client base. Because the customer is instantly pummeled by catalogs after a first purchase, the customer tends to be more responsive, and therefore, repurchases faster. This is one advantage that catalogers have over e-commerce-only business models. E-commerce-only business models struggle to build a relationship with a customer ... e-commerce is transactional, cataloging is relational.

Second, and more important, is the fact that as the customer becomes loyal, the customer has the same repurchase rate, regardless of business model. Here, the catalog industry grossly overstates the importance of a catalog. When customers become loyal, customers buy because customers love the brand, not because customers love the marketing strategy. It is harder for the e-commerce-only business to move a customer along to loyal status, but rest assured, when the customer becomes loyal, the customer buys just as often as at any other business (just ask Amazon or eBay).

This is where catalogers need to step back and throw out thirty years of collective experience. The instinct of the cataloger is to attribute/matchback every single order observed to a catalog. And because the cataloger mails 12-75 times per year, the cataloger will, undoubtedly, attribute/matchback every single order to a catalog. The cataloger must ask why the e-commerce-only business model has the same loyalty as the cataloger, but does not mail any catalogs? How is that possible? And what might happen if the cataloger cut back on catalogs to loyal buyers?

There are two major takeaways for you.

  1. E-commerce-only businesses have a lot to learn from catalogers about how to build customer relationships after a first purchase, because catalogers are simply much smarter at this than are e-commerce-only businesses.
  2. Catalogers have a lot to learn from e-commerce-only businesses about creating customer loyalty. If an e-commerce-only business can achieve loyalty without mailing a single catalog, it suggests catalogers have completely misread what causes loyal customers to purchase (hint = merchandise). 

September 29, 2014

Diagnostics: How Management Responds To Changes

A good marketing/analytics system should be able to detect when the Management Team is actively trying to steer a business out of a problem.

Look at this table. Here, new buyers decrease from 55,000 in 2012 to 52,000 in 2013 to 49,000 in 2014, similar to yesterday.

And yet, sales do not decrease. Why?

Look at $ per repurchaser - among 12-month buyers.

This metric increases from $200 per customer to $220 per customer to $230 per customer, on an annual basis.

When you see declining new buyer counts and increasing spend levels among existing customers, you realize that "management figured out something is wrong". In other words, Management may not be able to fix the new customer problem (yet), but they realize that there is a problem, so they goose the top-line by getting existing customers to spend more.

Of course, this doesn't mean that Management figured out how to fix the business. Not by a long shot. It just means that Management has reporting to help them understand that something is wrong, and is trying to keep the ship afloat.

FYI - this table was very, very common in 2007, prior to The Great Recession. And it is very common in 2014 - in the in-store retail purchase channel. In retail, we're seeing new customer count issues, and in response, we see Management offering 20% off and 30% off and 60% off in an effort to get the traffic they have to buy something.

By the way, if the customer really demands omnichannel solutions, then as you install your omnichannel strategy, you should see an explosion of new customers, should you not? What is your reporting telling you about the success of your omnichannel strategies?

P.S.: If you don't have the resources to run a project of this nature and want my help, then click here data/cost details ... kevinh@minethatdata.com.

Diagnostics: Canary In The Coal Mine

Any marketing/analytics system should be able to quickly identify a business issue. One of the problems with modern analytics software is that the software tends to be campaign centric - meaning that software identify problems with campaigns, not problems with businesses.

In most of the businesses I analyze, there is a canary in the coal mine ... a metric that helps determine that something is wrong.

That metric, of course, is the number of new customers.

The example above is very, very, very common. Look at the annual repurchase rate ... it is essentially flat. This means that existing customers are remaining loyal. Now look at spend ($ per rebuy). That metric is also flat. Customers are spending the same amount, year-after-year.

The metric that is changing is the number of new buyers ... down from 55,000 in 2012 to 52,000 in 2013 to 49,000 in 2014. This metric, of course, does not impact sales in 2013 - sales still increase - but the cumulative impact of poor new customer counts does send the business into negative growth territory in 2014.

I always look at new customers - it's the canary in the coal mine.

By the way - I frequently observe this table in modern retail in-store buying - store sales are tepid largely because the number of new customers is in decline.

September 28, 2014

Shop.org - Seattle

I'll be in Seattle on Tuesday afternoon - slots are filling up fast, so if you want to meet, send me a quick message (kevinh@minethatdata.com).

Thanks,
Kevin

P.S.: Speaking of conferences, join me in New Hampshire in February ... click here! I have all sorts of goodies ready to share for that one.

September 25, 2014

Matthew McConaughey

Ok, click here to see the commercial (right here, folks).



By the way, I'm sure the title of this blog post will really ramp-up the fabled "engagement" metric here at The MineThatData Blog. Sure, I could write about Merchandise Forensics and sell a bunch of consulting projects, but my goodness, Mr. McConaughey is going to blow up my engagement dashboard. Real-time alerts are already going off, folks. For a moment or two, I thought all that beeping meant that I had to replace a smoke detector battery, but then I realized it isn't time to go off Daylight Savings Time yet.

This article (click here) suggests that Lincoln sold 2,895 of these cars from January - July. That's eight (8) per state per month ... two per state per week. With a starting price of $34,000, this car probably retails for $45,000ish. In other words, on an annualized basis, before the commercial series began, we're talking about $223,000,000 as the baseline business opportunity.

So if the commercial series bumps sales by 15%, we're looking at another $33,000,000, folks ... probably $3,000,000 to $6,000,000 profit. That might be enough to pay Mr. McConaughey. Who knows how much is being spent on the sixty second spots required to get the word out to younger customers? But every penny above and beyond gets Lincoln closer to paying for the ads.

If you don't feel like watching the commercial, I thought you might enjoy reading the text.
  • "Sometimes, you've got to go back to actually move forward. And I don't mean going back to reminisce or to chase ghosts. I mean going back, to see where you came from, where you've been, how you got here, to see where you're going. I know there are those who say you can't go back. Yes you can. You just have to look in the right place."
I had a catalog client who asked me how to go back to the way things used to be. Apparently, they haven't looked in the right place.

Have you ever been in one of these advertising sessions, designed to launch the creative necessary to produce "brand authentic" campaigns, designed to yield the paragraph illustrated above? You start the meeting at 9:00am, but the agency shows up at 9:03am, because the line at Noah's Bagels was out the door and Noah's ran out of veggie shmear (yes, that's how Noah's spells it, click here folks). Following a "meet and greet", the agency tells the analytics team that they've done great work, work that is a "good start" toward the storyboaring session that begins at 9:20am. They tell the analytics team that they will "take it from here", and then they dismiss the analytics team from the meeting. The analytics team only came for free bagels anyway.

The storyboarding session's them is "no idea is a bad idea" but it becomes painfully clear that only the agency and the Divisional Vice President offer ideas that will be viewed as aligned with the "brand promise". There's not much that is more important than the brand promise. The group will learn that 57% of likely consumers embrace the brand promise, 6% are likely to use a hashtag on Twitter to express positive sentiment toward the brand promise. All nod approvingly at the magnitude of the metric, fully comprehending the raw power of social media, power that will somehow have to be harnessed. But that topic will be addressed at 11:15am.

Over lunch (Salmon BLTs, 120 calorie packets of salt and vinegar kettle chips, an apple, a moist chocolate brownie, and a vegan salad option with kale chips for the remaining 65% of those in attendance), the team goes to work on the text that Mr. McConaughey will say in the commercial. A robust argument ensues over the concept of "chasing ghosts". Allison from the agency feels that ghosts (and clowns) are frightening, and not aligned with the comforting vision of the brand promise. Kaitlyn from creative is brought into the discussion, given that she is smack-dab in the middle of the customer persona Lincoln is pursuing. Kaitlyn wants to know if the car stereo will integrate with the iWatch she plans on purchasing next spring? Agency staffers are visibly agitated, for technology has nothing to do with a commercial involving one of America's most beloved actors, even if Kaitlyn is spot on in her assessment of the viability of the vehicle for those age 18-34. Kaitlyn is promptly escored back to her cubicle, where she will be asked to politely avoid future contact with the agency. She resumes working on an in-store poster offering outstanding credit terms on new vehicles purchased from dealer stock.

It is here that the "ideation session" begins. Each member of the agency, and the Divisional Vice President (all other Lincoln employees are asked to sit in a row of folding chairs organized along the wall of the conference room, and are not allowed a seat at the table to participate in ideation. The agency asks each individual sitting at the table to provide a specific example of a time when they had to go back, in order to move forward. The DVP wipes a tear from his eyes. He narrates a story about having to sell his four year old BMW and instead purchase a used Prius because he was fired at his prior job. This allowed him to move forward and get a job as a DVP at a consumer package goods company. After landing the job at Lincoln, the DVP was finally able to trade in the Prius and buy a brand-spanking new Lincoln with his $1,400 a month corporate funded car allowance. The sixteen participants from the ad agency all nod approvingly, offering light applause. The individual leading the Lincoln account offers the DVP tissue paper to dry his eyes with. Lincoln employees (seated along the wall) ask each other if they knew that DVP's received a $1,400 per month car allowance in addition to the leasing discount all salaried employees enjoy? Half of the employees are contractors, and as a result, are not eligible for the leasing discount, health care benefits, or the vegan salad option with kale chips. Thank goodness they are seated along the wall of the conference room, where their displeasure is undetected by those in the ideation session.

It is 4:45pm. The text for the commercial is agreed upon. The day is over. Tomorrow, the team will work on the video. There is already disagreement in the room. Kip, from the agency, does not think that Mr. McConaughey should verbalize the words. Haley, from the agency, thinks that Mr. McConaughey should verbalize the words, because it lends authenticity to the commercial, and Mr. McConaughey only signed on for this exercise if the ads conveyed authenticity. Tyson from the agency, in a southern drawl, ends the meeting with the phrase "alright alright alright". Even the employees sitting along the wall laugh.

You might think I am making fun of this process.

But geez, I really miss these meetings. Times have changed, and with it, much of the creativity has been sucked right out of the building.

Modern e-commerce has gone too far away from what I outlined above. Way, way too far away.

Somewhere between the sample meeting outlined above, and the data-driven optimization-centric approach to everything in modern e-commerce is a reasonable approach to finding new customers.

It's really, really hard to find examples of reasonable approaches to finding new customers.

Maybe this is why it has become so terribly hard to acquire new customers these days. Maybe we aren't being creative enough?

September 24, 2014

Questions

In the comments section, ask a question, or email me your question (kevinh@minethatdata). If I get a reasonable number of credible questions, I will create a blog post series around your questions.

Here are some of the questions I field.


How do I acquire a new customer without spending money or without giving away margin dollars via discounts and promotions?

Why is it so hard to reactivate older customers? Before the economy collapsed, reactivated customers were a gold mine. It's almost like the customer has no memory anymore.

I sell branded merchandise, and you seem to have no answers for improve my business. How can I compete when everybody else is selling what I am selling?

Showrooming is overrated. Your mobile and e-commerce presence actually help stores, though it doesn't seem to manifest itself in sales increases. I guess I don't have a question, I just really enjoy joining the omnichannel discussion.

Why don't Executives ever listen to what I have to say?

Why don't Analysts ever produce actionable findings?

Everybody says I have to be omnichannel, but the customers I acquire from all those other channels have low value and tend to not scale to manageable quantities. Am I doing something wrong?

Can I grow my business by extending existing product categories?

Can I grow my business by cutting styles by 30%?

Can I get my customers to spend more by offering unrelated product categories?

What do I do if the vendors I source my merchandise from are constraining their merchandise assortment? Long-term, won't this hurt my business?

More than half of my file purchases via discounts and promotions. How do I reverse course and get my file purchasing merchandise at full price once again?

Is there any way to pivot my business from a 65 year old customer to a 45 year old customer while still selling the same merchandise assortment and still mailing a lot of catalogs? Can we just employ a best practice for creative that appeals to a 45 year old?

Why aren't customers age 25-34 as loyal as the rest of my customer base?

Why are the three months following a first purchase so darn important?

We raise prices on new merchandise, but find that our customers are then less likely to embrace new merchandise. How do we ever achieve acceptable gross margins when our customers simply won't spend enough money with us?

Don't you think that the environment out there is so promotional that we must also be promotional, or we'll be out of business?

Should we respond to what our competitors are doing, or should we chart our own course?

Our business model is so unique that what you talk about is meaningless to us. How could anybody possibly help a company as unique as ours?

Does it matter if my customer is 70 years old? Sure, my customer was 55 years old in 1999, but now that my customer is retiring, won't every customer who will retire in the future pass through my niche, thereby enabling my business to reap the rewards of a properly managed business model?

Why do I need a younger customer when Baby Boomers have all the money?

Why are more than half the names given to me by the co-ops not buyers from the product category that comprises my business model?

Why are so many conferences employing some version of "pay to play"? Do conferences not earn enough money from those in attendance? Can I trust the message offered by the conference organizers if vendors are paying for speaking slots?

How can I ever come up with enough truly new, unique merchandise when my competitors knock-off what I invent within six weeks, and sell the knock-offs at a lower price?

Isn't it more important to focus on the customer than it is to focus on merchandise? Without a customer, you cannot sell merchandise, correct? Therefore, marketing is more important than ever, and that's where I need to spend my energy. Besides, our merchandise is fantastic, amirite?

Doesn't it make logical sense that if I outsource my marketing activities to smart vendors then my business should improve significantly? Hiring the best talent at the lowest possible price has to be good for business, right?

Why is it that we keep making improvements to our website, we keep improving conversion rates, and yet, sales don't increase? How is that mathematically possible?

Isn't it smarter to be a $100,000,000 business earning $5,000,000 profit per year than a $90,000,000 business earning $9,000,000 profit per year? Who cares about profit when you can earn market share and damage the competition in the process?

How do I get my customer to act the same way in all channels?

Am I going to be required to offer the customer free two day shipping in the future, and if so, what promotional levers will I be able to use, because free shipping promotions really goose sales when business is slow?

Does it make more sense for me to be a vendor to Amazon than to continue as a standalone direct marketer?

Who is an attribution vendor who "gets it"?

Don't you think that if we could nail the attribution issue that we would know where we should spend money, and as a result, we'd be much smarter marketers? Isn't attribution the thing that is holding us back? This is like a puzzle, and we just need somebody to show us how the pieces fit together. Why does the industry struggle with this concept? And could you tell us, for free, how the pieces fit together?

Why do you write so many blog posts? I'd be a lot happier if you spammed me less. And while I am at it, why not offer your loyal readers more free, actionable information?

How could you possibly grow a business without a catalog? It's got to be impossible, don't you think? Name one brand that was able to get past $100,000,000 in annual sales without a catalog?

How could you possibly grow a business using a catalog business model? I mean, sure, customer loyalty would improve, but at what cost? It's too expensive to put paper in the mail, and nobody under the age of 50 even cares, right?

Retail is doomed, don't you think?

What do you think is the next innovation in omnichannel retailing? This has to be the most exciting time ever, in retail. I just love seeing how everybody responds to the omnichannel movement.

How do we ever get a customer to care about email marketing? Unless we offer 20% off or free shipping or some sort of gift, we don't have any engagement. Is email really just a promotional channel for customers who don't want to pay full price for our merchandise?

Why do vendors, trade journalists, conference organizers, and consultants obsess about social media when almost nobody generates any business from social media? Is it possible that the rules that drive business for vendors, trade journalists, and consultants are fundamentally different than the rules that drive my business, or are these people really misguided?

Our whole business model is based on traffic from Facebook and Google. What do we do when Google changes their algorithm and we're unfavorably impacted?

Why is it so hard to find one personalization case study that increased total company net sales by at least 10%?

Isn't it better to mail an individual customer 35 catalogs a year instead of 25 if it means that the customer spends more? Isn't it better to have a big customer file than a profitable customer file?

I have a catalog. I have a website, fully integrated with the catalog. I have an app, for free no less. I fully leverage Facebook, Twitter, Pinterest, and Instagram. I use A/B testing to optimize my website. I use a leading catalog contact frequency vendor. I partner with all the major co-ops. I have up-sell and cross-sell programs. I have triggered email programs. I pay the best search vendor a pretty penny to capture the customer on Google. I pay affiliates for 5% of my orders. I pay a newly formed catalog agency for thought leadership. I make sure that every single visitor to our website sees retargeting ads, even if the visitor is engaging with sites that have nothing to do with commerce. I have YouTube videos, one even managed to go viral. I pay agencies for social media sentiment. My net promoter score is in the top 10% of my industry. I spent a year building a world-class customer database, allowing my staff to answer any question they can imagine. I have a loyalty program for my best customers, I give 20% off plus free shipping for first-time buyers. I'm doing everything right. And my sales are not increasing. Why?

September 23, 2014

Conversion Rate

A show of hands ... how many of you measure how often good customers visit your website, on a monthly basis?

I know, I know, the percentage of affirmative responses is under 10%.

Go measure active visitors on a monthly basis. If these folks are visiting an average of ten times a month, then why in the heck are you obsessing about optimizing conversion rate? Seriously, why? The customer is coming back every third day ... do you care if the customer converts today or Saturday? No. You just care that the customer converts this month.

But because you are obsessed about conversion, you offer 30% off plus free shipping ... and you get the customer to bite ... even though the customer would have bitten three days later anyway.

Measure this stuff with a purpose - you want the customer to buy something this month, not this specific visit. The more you focus on this specific visit, the more you beg the customer to buy something via discounts and promotions and phony optimization, costing your business the profit your merchandising team has worked so hard to generate.

September 22, 2014

Diagnostics: Knowing Where To Stop

In good system, you don't drill down too far, and you don't overwhelm folks with too much information.

If you know how to do that, tell me how! Honestly, I go too far all the time, and I confuse folks.

But the better you design your "system", then the more efficient the system is at telling you that you've gone far enough.

Here, I divided up Womens productivity by price point ($0 to $20 items, $20 to $50 items, and $50+ items). What do you observe? Well, productivity in the lowest price points is obviously increasing, as is productivity in mid-level price points. High price point items is in free fall.

Then look at the final two columns. We can see that new item productivity is in free fall, while existing item productivity increased for a few years, then fell badly once there weren't enough new items to fuel existing item productivity.

This is a place where you stop telling your story. You have enough information to craft a story, to not overwhelm folks, and to truly identify the business problem. Stop here. Craft your story. And get ready to duck, because there's going to be a contingent that take umbrage with your story.

Don't want to do the work yourself - or don't have the resources to do it? Give me a holler (kevinh@minethatdata.com) - click now!!

September 21, 2014

Diagnostics: A "Developing Story"

One of the most important aspects of a good "system" is the ability to tell a story.

Now, I get it, many people are going to disagree with your story. That's fine. But your "system" should support the development of a story. In other words, as you drill down into the problem, you should be able to increasingly observe clarity, and be able to connect the dots.

In the example we've been working on this month, we observed productivity declines across both online and in-store channel. This strongly suggests that there is a merchandise productivity issue. The next above looks at the three key merchandise departments that this company offers.

What does the Mens column tell you?

What does the Womens column tell you?

What does the Kids column tell you?

It becomes painfully obvious that the Womens division is killing the company. Kids productivity is largely flat, or increasing slightly. The Mens division is growing nicely. The Womens division is in a free fall.

There are three key points we've identified, so far.
  1. Channel productivity is not a problem.
  2. Merchandise productivity is a problem.
  3. Womens Merchandise is dragging down the entire brand.
We have a "Developing Story", don't we? All good systems make it easy to identify the "Developing Story".

September 18, 2014

Have A Plan

Have a plan.

I frequently talk about the 2005-2006 timeframe at Nordstrom, when we killed a traditional catalog business, pulling $36,000,000 of advertising out of the mail, and still grew net sales.

You try pulling $36,000,000 of advertising out of the mail and still grow sales! It's not easy. Especially if you don't have a plan.

I recall sitting in the office of the Inventory Executive at Nordstrom Direct. This was a well-seasoned professional. She had no faith in "the plan" - and for good reason - she was a "data driven" person, and the "data" suggested that without catalogs, you would not generate sales online. Yup, that's what the data said.

But there was a plan. Yes, it was a plan based on faith. There wasn't data to suggest that the plan would work ... this was 2005, after all.
  • Stop renting names via the co-ops. 
  • Take Nordstrom names off the list rental and co-op market, permanently.
  • Remove $36,000,000 of catalog mailings from the mail stream.
  • Double the email frequency.
  • Move $15,000,000 or more into paid search.
  • Integrate the merchandise across channels.
  • Work as a team - encourage in-store associates to promote the website.
  • Produce a monthly catalog whereby each page was sold to vendors for $29,000 each - vendors picked the merchandise that appeared on the page.
That plan, as outlined right there, sure doesn't inspire confidence, does it? That plan had to recoup $150,000,000 in annual net sales. And when we mailed those vendor-funded catalogs and realized we'd only recoup $20,000,000 in annual net sales, well, geez, that didn't sound too good.

But then time progressed. Customer behavior shifted. We lost most of the customers who generated the $150,000,000 of catalog demand, and ultimately replaced them with $165,000,000 of online demand generated by customers who were much younger, and who liked the new assortment (which in many ways mirrored the retail assortment).

I get it. You come up with plans all the time - and your Finance team or Analytics team beat you over the head because you cannot prove that your plan will work.

Ignore them.

Have a plan.

And have faith.

Yes, you're going to be wrong, often. But if you listen to the Finance team, and if you listen to your Analytics team, you will never make anything more than tiny, incremental changes.

Have a plan.

September 17, 2014

Amazon and Merchandise Forensics

You read Benedict Evans, don't you (click here for a sample article about Amazon - the image to the right is from that article).

In this essay about Amazon, he cites this image, a refined version of one drawn on a napkin by Jeff Bezos.

Look at the arrows, look at the words.

Words/Phrases that are missing:
  • Multichannel.
  • Omnichannel.
  • Mobile.
  • Social.
  • 20% off Plus Free Shipping.
Sellers and Selection ... that's Merchandise.

Customer Experience? That's pretty important.

The essence of Merchandise Forensics is outlined in the image above. Merchandise improves the customer experience, which drives traffic, which attracts sellers (your merchandise vendors) which improves selection which improves the customer experience.

Is it possible that we're focusing on the wrong things, and that's why business isn't so great?