June 16, 2010

Fetzer's Footwear: The HiPPO

Today, Lauren Fetzer, CEO of Fetzer's Footwear, has invited me to join her in a meeting with her Executive Team. The team is going over plans for 2011. Lauren is in her office, listening to her iPod Touch.

Kevin: "What are you listening to?"

Lauren: "Always The Last To Know by Del Amitri. The lyrics aren't what matters, I just like listening to this before Executive meetings because so often something comes up, and I'm the last to know."

Kevin: "Alright."

Lauren: "Let's go."

We enter the conference room.

Lauren: "Ok folks, let's get going. Penny, what did sales look like yesterday?"

Penny Parker (VP, Marketing): "The website was up 17% yesterday vs. last year, traffic was up 22%, conversion rates were down significantly, continuing a theme we've seen for a long time now. Retail comps were up 5%, led by Downtown Seattle at +22%. Alderwood was -2.8%"

Bart Cox (VP, Stores): "Don't ask, Lauren."

Bill Bledsoe (VP, Logistics): "Something doesn't make sense, folks. We've worked so hard to improve the website experience for our customers. We've implemented a myriad of improvements. Yet, no matter what we do, conversion rates don't improve. Well, they seem to improve for a while, then they just fall back to our baseline."

Ashley Zimmerman (VP, Merchandising): "What's on the docket to improve conversion rates in 2011?"

Connie Simpson (VP, Finance): "And given the potential sales we could generate if we improve conversion rates, it makes perfect sense to spend money to improve conversion rates, so I'm not here to get in your way."

Penny Parker: "Let's pull up a spreadsheet (Penny clicks on her laptop keyboard, a file opens and is displayed on a large plasma monitor). In 2011, we are planning to do a series of website improvements, based on testing we've done during the past year. You can clearly see the laundry list of improvements on the monitor. We have at least two dozen e-mail campaigns that will support our improvements and drive traffic to the website. We strongly believe, based on our tests, that we need to focus more on the product on the home page, and utilize less lifestyle imagery. The tests show we can improve conversion rates by 8.43% if we do this on an ongoing basis."

Ashley Zimmerman: "We've gone over this over and over and over again. We need to communicate the lifestyle aspect of our brand, or we don't have a brand, we're just Zappos without the social media tie-in."

Penny Parker: "And our testing shows that presenting the lifestyle aspects of our brand is counter-productive to driving sales and profit. We have the data to prove it."

Bill Bledsoe: "Are the result statistically significant?"

Penny Parker: "Absolutely. Our tests showed that there is only a 2 in 100 chance that the results are wrong."

Bill Bledsoe: "Wow, that's amazing. How often in business can you count on something ninety-eight times out of a hundred?"

Penny Parker: "I agree! That's why we need to stay the course. We need to focus on what has always worked. I think we just need to make our campaigns work harder. Everybody needs to step up to the plate and be accountable for delivering results."

Ashley Zimmerman: "That works to a point. If you follow that strategy to the extreme, we'd still be selling Colorado boots from the 1980s. At some point, you have to take risks."

Penny Parker: "My team measures risk. We test products against each other, we test creative treatments, we test home page offers, we test it all. When we follow the outcome of our test, we succeed."

Connie Simpson: "So why is it that we do all of this testing and optimization and analysis and nothing ever gets better, Penny? What was our annual retention rate last year, 55%? It's been 55% for a decade. You keep improving everything, and the needle doesn't move a bit."

Penny Parker: "I disagree. Had we not tested and optimized, maybe our retention rate would be 47%?"

Connie Simpson: "If you go back to 1999, how many online marketing campaigns were we executing each year?"

Penny Parker: "Maybe a dozen, a monthly e-mail campaign at most."

Connie Simpson: "And today, how many online marketing campaigns are we executing on an annual basis?"

Penny Parker: "Oh, heavens, thousands, maybe tens of thousands, coupled with hundreds of thousands in search."

Connie Simpson: "And yet, our annual retention rate is the same as it was ten years ago. So what is the point of all of these campaigns? Do any of them generate incremental sales, or is all of the work done by your team just cannibalizing work done by other members of your team?"

Bill Bledsoe: "This is a multi-channel world, Connie. Multi-channel customers are the best customers. We have to be in all of these channels, or we lose market share among the most valuable customers."

Ashley Zimmerman: "I need the creative flexibility to run the products I want to run, and I need the creative flexibility to present the products the way I want to present them. I'm not going to have some marketing bean counter telling me what I should or should not do. Do I tell the marketing bean counter how to execute a test, do I dictate the control size, do I force the marketer to use a certain type of statistical test, do I judge the analytics wizard based on one-tail or two-tail tests? Certainly not! They are the experts, they get to do what they do best. I, too, should be able to do what I do best. I am the expert when it comes to presenting products."

Connie Simpson: "And yet, Penny's data suggest that you are not the expert, her data suggests that your customer has preferences that you can follow in order to improve business."

Ashley Zimmerman: "Connie, do I tell you how to invest money? You lost $200,000 last month by hedging against the Euro, what does that have to do with selling shoes? Maybe we should have Penny run optimization tests against your hedging strategies. And Bill, do we honestly think that your delivery tracking system is working best? Maybe we should have Penny measure how many days it actually takes to get a product to a customer, and then optimize against UPS or USPS or FedEx. How does that sound? I mean, seriously, everybody loves measurement and optimization until you are the person being measured and optimized. Then it isn't so much fun. Lauren, I need the creativity to do what I think is best."

Penny Parker: "And Lauren, I think it is sub-optimal to present merchandise the way Ashley wants to present merchandise, I think it is hurting our business."

Bill Bledsoe: "Kevin, you are sitting there smiling, why?"

Kevin: "Lauren, what do you think we should do?"

Lauren Fetzer: "I think we need to give Ashley the room to do her job as she sees fit, and when she fails, she's fired. Penny is free to measure Ashley's techniques, but by the same token, Penny is accountable for her own campaigns, and as best I can tell, her campaigns aren't working, because our annual retention rate isn't moving. So in time, Penny and Ashley will succeed, or they will fail."

Bart Cox: "That's how we do things in retail. We don't need to be hit over the head with a bunch of complex metrics. Either things work, and you keep your job, or they don't work, and you're fired."

Kevin: "That's why I was smiling. Lauren is playing the role of ..."

Penny Parker: "The HiPPO. She always plays the role of the HiPPO."

Kevin: "Yes, and that role, despite being despised in the social media and analytics world, is needed for dispute resolution."

Bart Cox: "We don't have disputes in retail. We do what I say we should do. My team marches in formation to my commands."

Penny Parker: "But that's a problem with this company. We're not a data-driven company. We have the metrics to prove points, and then Lauren's opinion trumps others."

Ashley Zimmerman: "We need to be a merchant-driven company, Penny. Without merchandise, we are out of business. Without marketing, we aren't profitable."

Lauren Fetzer: "We'll, we've beaten this horse long enough, it is time to move on to something productive."

Penny Parker (whispering to Kevin): "HiPPO".

4 comments:

  1. I'm surprised you haven't received any comments on this post. It seems to me there is a fundamental flaw in the way those people are thinking. It says conversion rates are down (but later says they go up/down and back to baseline).

    First, the up/down might be an effect of seasonality, marketing campaigns or other types of events/activities. Penny should find out with is the amplitude of the conversion variance and see if there is any correlation with those external/internal events.

    But most importantly, if the baseline conversion rate remains the same but visits keeps increasing, you are still improving the bottom line!

    The other underlying aspect, which is stated, if "what if we did nothing". Maybe it's time for some competitive analysis: if everyone is down 10% but I'm stable, I'm actually achieving pretty good results!

    Anyway... interesting case!
    St├ęphane

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  2. And that is why this is written the way it is ... there are all sorts of facts that can end a discussion like this, but inter-personal dynamics get in the way, resulting in an odd discussion that some high-paid person eventually has to end!

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  3. I have seen similar scenario before.

    It's interesting dynamic. You have the data and analysis, but then you need to be able to present and convince others. This is a classic organizational behavior issue - no matter how great idea do you have, can you build team around it.

    What I saw missing here is what are the arguments for the business strategy. What else they are doing in the marketing on-line or off-line. And how the overall product demand curve correlates to the conversion dilemma. It could very well be that the overall demand is going down, or customers' trend is to use a different product or service.

    Where and how do you qualify that? I think that would need to happen.

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  4. It's written this way for a reason, Deven, because so often the arguments for the business strategy fail to ever enter the discussion!

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