February 11, 2013

10 Important Questions

Post this article in your cube/office, and see if you can answer each question.

Number Ten = Can I make enough profit after my customer has been with my business for one year, so that I can pay for the cost to acquire the customer?  This question is tough to answer in most analytics packages.  Most people don't know the answer to this question.  Most people are more receptive to this question than "what is the lifetime value of a customer?"

Number Nine = Can I generate enough profit once a new product survives twelve months to pay for new products that fail to be embraced by customers?  Same question as number ten, but from a merchandising perspective.  Most folks don't look at merchandise this way.  It's time we look at merchandise this way.  

Number Eight = Did the new items introduced last year outperform the items your merchants killed last year?  In maybe half of the businesses I analyze, this is a serious issue ... not enough new products are being developed, and the new items being developed do not outperform older items enough to fuel the future of the business.

Number Seven = How has the average age of my customer changed in the past five years? If your customer is aging 0.5 years to 1.0 years for every 1.0 year that passes, well, then you have a problem.  And the faster your customer is aging, the less likely that social / local / mobile strategies will have any impact on your business, further trapping your customer file in the year 1999.  I run into this problem, frequently ... by analyzing data or by fielding calls.

Number Six = Am I overly dependent on a small number of high-performing items?  It's not uncommon to see a business that generates 50% or more of annual sales on 5% or fewer of total items offered.  Tread carefully if this is your business ... it's kind of like putting all of your retirement money in Apple stock.

Number Five = What percentage of net sales flow through to profit (before subtracting fixed costs)?  This metric, called the "flow-through rate", dictates everything marketers do.  This is a great question to ask an interview candidate.  Ask the candidate to guess your flow-through rate, it will tell you a lot about the business acumen of the candidate.  By the way, if you work at a publicly traded company, then the data is readily available in your 10-K and 10-Q statements, so go find out what your percentage is!

Number Four = What will we do to please the customer in the ninety days following a first purchase?  Almost all of my projects show that as many as half of first-time buyers who will ever purchase again do so within 90 days of a first purchase, frequently adding-on items complementary to the items sold in a first purchase.  This is a critical time in the customer life-cycle.  Focus on this timeframe before your competition capitalizes on it.

Number Three = What percentage of last year's purchasers buy merchandise again this year?  This rate dictates your whole business model.  Hint - 70% of my clients have an annual repurchase rate below 40%, and most of these businesses are highly profitable.  A low rate does not indicate a loyalty problem.  Rather, a low rate helps indicate the frequency of the problem a business solves for a customer (see number one below).

Number Two = How will customers learn about the merchandise I sell?  This question is actually very difficult to answer.  It requires a marketer to think.  We know all about tactics (paid search, word of mouth, catalog co-ops).  Not many of us have a holistic strategy for informing customers about the problem that we solve (see number one below), and the path that leads the customer to problem resolution.  This is how we need to be thinking about customer acquisition ... don't call it customer acquisition, call it problem resolution, and see where it takes you.

Number One = What problem does my business solve?  If you were eBay, you might answer "we connect customers looking for hard-to-find merchandise with those who sell hard-to-find merchandise".  How would Starbucks answer this question?  Forrester Research?  Orvis?  L.L. Bean?  Take L.L. Bean, for instance.  What is the problem that they are solving?  Then think about their solution.  Is their solution substantially better than Lands' End, Gap, Eddie Bauer, J. Crew, Talbots, Chicos, The North Face?  What happens to L.L. Bean if the customer no longer has the problem that L.L. Bean solves?  This topic might be worthy of a half-day executive workshop, don't you think?  And I'm not picking on L.L. Bean, because obviously they've figured out the problem they are solving, or they wouldn't have been around forever. I'm asking you to view the question through their eyes, then to translate the thought process to your business.

It's pretty important to be able to answer all ten questions, don't you think?