November 14, 2013

Multiple Channels Limit The Assortment The Customer Buys From

You'd think that all of these channels result in more and more items being sold.

And yet, in my Merchandise Forensics projects, I keep seeing an opposite trend.

In one recent project, the number of styles sold by channel yield an interesting trend.
  • Telephone / Catalog = 4,393 annual styles selling at least $500.
  • Online = 3,558 annual styles selling at least $500.
  • Email = 3,240 annual styles selling at least $500.
  • Search = 2,992 annual styles selling at least $500.
In online marketing, the best-selling items tend to be featured on the home page, and on landing pages, giving them more attention, making it hard for low-selling items to get any attention outside of a "customers who bought 'x' also bought 'y'" environment.

In email marketing, the items with lower price points and high unit volumes tend to be featured more often, in an effort to ramp-up email opens/clicks.

In search, the items that Google wants to give attention to get attention. You play a role in the items that are ultimately purchased, but Google plays a bigger role. Nobody talks about this, but Google, not your customer, decides what sells.

What does this mean? As a business is "digitized", we're seeing more and more demand pushed into fewer and fewer styles/skus. Chasing customers in an omnichannel world may (or may not) yield an integrated customer experience that may (or may not) yield increased sales. 

What so few people are thinking about is the thought that the omnichannel experience fundamentally alters the merchandise assortment, putting a business at increased risk via a smaller, high-selling assortment. 

As fewer and fewer items generate sufficient sales volume, the marketing team respond by "promoting" those items at 20% off plus free shipping, further diluting the profit and loss statement.

As the profit and loss statement is diluted, the CFO responds by outsourcing functions, reducing headcount, lowering expenses.

As marketing is outsourced, vendors algorithmically take over, and the cycle results in an acceleration of a small number of winners and a large number of under-performing items.

Think about this, and measure it. You're going to see the seeds of this dynamic appearing in your business, too. The vendor community, through "omnichannel" and mobile, is reshaping your business in ways you have not anticipated.