October 07, 2013

Cascading Problems

I talk about this in the booklet - that one set of problems cascades, yielding other problems (click here to purchase the booklet).

Maybe this sounds familiar to you?

Here's what I typically find:
  1. In 2010-2011, coming out of the recession/depression (are we out yet?), there was pressure on the profit and loss statement. Everybody had to be on top of their game. As a result, merchants were under pressure to maximize performance.
  2. Merchants, seeking to maximize performance, stayed away from new, risky products, squeezing every last ounce out on proven winners.
  3. In 2012, two years of reduced new product introductions tricked into a problem with existing items. A 20% reduction in new products yielded an eventual 10% reduction in winning items in 2012.
  4. With fewer high-productivity existing items, fewer new customers were acquired.
  5. With fewer new customers being acquired, the marketing team gets yelled at.
  6. When the marketing team gets yelled at, you can rest assured that discounts and promotions are not far behind. This propped-up 2012 demand, temporarily.
  7. With demand propped up, profit suffered, causing Management to trim expenses.
  8. In 2013, there are even fewer winning existing items, following three years of new item problems.
  9. With even fewer winning existing items, marketing runs out of additional discounts/promotions, causing demand to once again sink.
  10. This results in fewer new customers and lowered customer retention.
  11. With fewer customers and lowered retention, there are fewer items that become "winners".
  12. And with fewer items becoming "winners", there are fewer customers, and as a result, we're running a business without profit.
That's when the private equity folks are called in.

Cascading problems.

All caused by a failure to properly monitor what customers spend on new items, and on existing items.

And it's so easy to measure this, folks, just do it! What do comp customers spend on new items, and on existing items? The answer falls right into your lap. You'll immediately see if there is a new item or existing item problem. Then dig into your merchandising data, and figure out what is going on.

You're not failing because of "omnichannel issues".

You're not failing because your business "isn't agile, or isn't social".

You're failing because of merchandising issues.

Go solve the problem! Email me if you need help (kevinh@minethatdata.com).