February 11, 2008

The Curse Of Great Merchandise

E-commerce, catalog, retail and multichannel merchants focus more energy on merchandise than on customers. As disappointing as this may be to customer advocates, vendors and research organizations, it is probably a necessity.

Many find the customer/merchandise relationship akin to the chicken/egg relationship.

In reality, there are few brands that start with a throng of customers, then question what they should sell to the throng. Brands start with a merchandise offering, then build a community of customers who purchase the merchandise/experience offered by the brand.

Some brands are wildly successful. They offer merchandise that customers love. This audience becomes the "core customer audience". Customer advocates suggest you don't anger the core customer.

And yet, merchandise has a life expectancy. Merchandise eventually becomes unpopular, or no longer has utility.

This is the curse of great merchandise. Your best customers want you to keep offering the merchandise your best customers fell in love with. Take the latte away from the Starbucks customer, and you'll have a mutiny.

When you have a moment, have your business intelligence team run this query for you. This is a very common relationship among e-commerce, catalog, retail and multichannel brands.

Percentages By Customer Acquisition Year

Year Merchandise Was Introduced
When Acquired Old Products Recent Products New Products Grand Totals

Long-Time Customers 64.0% 28.0% 8.0% 100.0%
Recently Acquired 46.0% 38.0% 16.0% 100.0%
Newly Acquired 37.0% 40.0% 23.0% 100.0%
Grand Totals 53.5% 33.3% 13.2% 100.0%

In this example, the most loyal customers, those with the brand the longest, spent sixty-four percent of their 2007 sales on old products, products introduced to customers more than four years ago. They only spent eight percent of their sales on products introduced during 2007.

Recently acquired customers, those acquired two to four years ago, strike a balance across product offerings.

New customers, those acquired in 2007, are much more willing to purchase new merchandise, merchandise offered for the first time in 2007.

This is a huge challenge for the direct-to-consumer CEO, especially if the brand is struggling.

If the CEO elects to offer a lot of new product, the core customer group will be offended, lowering annual sales, response rates, and conversion rates.

If the CEO focuses on best merchandise, the core customer group is pleased, but new customer acquisition struggles, hurting the long-term potential of the brand.

Each week/month, the e-commerce, catalog, retail or multichannel CEO should receive a report that illustrates the customer segments who purchased each item offered to consumers. By scrutinizing the customers who prefer each item, the CEO knows just how far s/he can push new merchandise to customers. By understanding how best customers interact with new merchandise, the CEO can hopefully avoid the curse of great merchandise.