November 28, 2013

Same Day Shipping

Let's get this straight:
  • Amazon is doing same-day shipping in various markets, partnering with the USPS.
  • Google is testing same-day shipping services.
  • eBay is executing same-day shipping in various markets on behalf of major "brands".
How about us ... catalogers? What's our plan? Who are we partnering with

For customers, tiers are being developed. Move to big cities or lose:
  • If you live in an urban area, you are blessed. You have 50mbps internet, and eBay will get you something from Macy's in sixty minutes, for free.
  • If you live in a rural area, well, thanks for playing. You have 3mbps internet, and Lands' End will get you an order in ten days with free shipping.
Businesses are sifting into tiers as well ... the 1.0 generation (Amazon / Google / eBay) using same-day (or same hour) shipping to compete against retailers. Retailers, meanwhile, are being distracted with the obviously misguided strategy of turning a mall-based store into a digital distribution center - I mean, be honest - name a customer who wants to get into a car, drive 20 minutes, try something on, realize the right size is not available, then get it shipped next-day from a store in Dallas when the customer could get the same item (or comparable enough of an item) in three hours from Amazon without ever leaving home (and possibly not paying sales tax, either)?

Be honest, folks. Omnichannel cannot compete with that. Omnichannel is a distraction that benefits vendors, and provides a temporary sales lift for retailers that did a poor job of stocking/fulfilling merchandise in the past.

And worse - read this (click here), eBay now turns Best Buy and Office Depot and other "brands" into nothing more than glorified eBay vendors. The retailer perceives a competitive advantage, while eBay captures (big) data and invades the customer relationship. Long-term, this is going to become a problem for retailers - much in the same way that the Borders / Amazon relationship was a disaster for Borders. You simply don't want a competitor hijacking the customer relationship, folks. It's one thing for FedEx to insert itself into the customer relationship. It's quite another thing for eBay or Google to insert itself into the customer relationship (image below from the eBay Now site - selling Best Buy products - with Best Buy disconnected from the customer relationship - now nothing more than an eBay vendor - go #omnichannel).




They're trying to destroy you, my dear retail clients. And the punditocracy is cheering them on.

Catalogers, meanwhile, are being thoroughly out-hustled. Amazon/Google/eBay have taken the fight to retailers, and have won Jennifer in the Judy / Jennifer / Jasmine equation (won via e-commerce and service. With Jennifer won over, the fight is for Jasmine (and that fight will be won via mobile and service). Catalogers, meanwhile, applied a "multi-channel" approach of using paper to push customers online. Judy, with her 3mbps online presence and no opportunity of ever getting a delivery in the next-hour from Macy's via eBay, is locked-in to catalogs ... for another 5-10 years ... and then what?

Catalogers are going to have to unite - Amazon / Google / eBay have "scale", as the pundits say. Catalogers, in total, have "scale". Catalogers can get what we want, but it's going to have to be as a unified front, all working together.

What are the odds of that happening?

Discuss.

P.S. Don Libey once called malls "future Cities of the Dead" (click here please). That was 2005. Here we are, nearly a decade later, and we're hyping the process of turning a mall-based store into a digital distribution center. In a world where eBay delivers a Best Buy product to your home in one hour, describe what type of a retail experience Best Buy can provide that would cause you to get in your car, battle traffic, drive 20 minutes to a store, and then stare at a bunch of merchandise?

P.P.S.  If this omnichannel customer is so darn valuable, then explain why 27% of e-commerce happens at Amazon? Wouldn't the most valuable customers shun Amazon in favor of a branded, retail + catalog + online + mobile experience offered by the omnichannel merchant?


November 26, 2013

Try Fair Pricing

Ok folks, it's the day before Thanksgiving - and you're not doing much anyway, so why not give this little ditty about Target a read ... click here ... go ahead, I'll wait for you.

It's a fair argument, one that screams for an "omnichannel solution", as the kids say.

Yes, an omnichannel solution would work - an in-house app linked to a bunch of data linked to 3rd party apps would get the customer the lowest price and would get a product shipped to a home on the same day. Woo-hoo!

Here's my question for you, the intrepid Executive / Marketer / Analytics Expert. Why not offer the best price 24/7/365?

When is the last time you've been in an Apple store, with customers using their phones to price check to make sure that the iPad is truly at the lowest price?

When is the last time you've been in a Bose store, with customers using their phones to make sure they can't get a Wave radio at a lower price at Best Buy?

Omnichannel ... it's a solution to a problem that doesn't have to be a problem.

Think about it. Why does the customer in the checkout line at Target have to go download some wonky app to make sure she is getting the best price? Honestly? Why? 

She has to do this because she can't trust Target. That's why. 

She knows Target is probably ripping her off. 

That's why she has to download a 3rd party app. And then she has to ask the checkout associate for a better price, and the associate gives her the better price, and then everybody in line behind the woman knows they, too, are being ripped off. Then they all ask for the best prices.

Omnichannel solutions work if you were already cheating the customer.

Fair pricing works for every customer.

November 25, 2013

The Fog

Is it possible that we're stuck in a fog?

If you are a catalog marketer, then give this little ditty from Bill LaPierre a read (click here). The insights you get from reading Bill's blog are just a bit deeper and more meaningful than "8 Reasons Why Social Media Will Save Your Holiday Season".

Read the "GREAT MERCHANDISE" paragraph (click here, look for the heading). I won't repeat what he says, he wrote it, you should read his content on his site.

Within five minutes of reading the article, an email arrived ... here it is:

"Big Data Brings Omnichannel to Life".

Big Data and Omnichannel strategies keep vendors in business. This is THEIR new product, THEIR new merchandise offering.

Here's another ditty ... "FOLLOWING ORDERS, NOT CHANNELS (click here)". The entire article then talks about channels.

After you read five thousand or ten thousand of these articles, articles that tell you what you "must do", you come to a realization.

  • The media ecosystem is diving head-first into their version of new merchandise.
  • By paying attention to the media ecosystem, we ignore merchandise, focusing instead on topics like Omnichannel and Big Data.
  • By ignoring merchandise, we disappoint our customers, causing them to spend less.
  • When our customers spend less, we look to the media ecosystem for solutions, solutions that have nothing to do with merchandise (but everything to do with new merchandise for those in the media ecosystem).
In other words, the media ecosystem focuses on their version of new merchandise, and their focus ultimately distracts us, the readers, from focusing on our new merchandise, hurting our businesses, causing us to focus even more on their version of new merchandise.

Hmmm.

I keep talking about merchandise, and for good reason. In my projects, merchandising issues account for +/- 10% of annual sales - and they compound, like interest, over time. Merchandise is within your control. And in so many cases, merchandise is being ignored.

It's almost like we're in a fog - we can't see what is truly important - with the media ecosystem using a fog machine to further blind us ... not intentionally, mind you ... they're doing it so that they can stay in business by selling their version of new merchandise.


Metrics That Matter Most

I ran a veritable plethora of trial "Hillstrom's Heath Index" projects in October - and it became very, very obvious what matters most (click here for file layouts - cost = $4,950).

In order of importance:
  • Number 5 = Increased Spend per Customer.
  • Number 4 = Increased Customer Loyalty via Increased Repurchase Rates.
  • Number 3 = Increase in Number of New, Winning Items Each Year.
  • Number 2 = Positive Balance in New/Reactivated Customers vs. Lost 12 Month Buyers.
  • Number 1 = Overall Increase in Merchandise Productivity.
What trade journalists, bloggers, and vendors ask you to focus on.
  • Number 3 = Omnichannel - Aligning All Channels Around Digital Initiatives.
  • Number 2 = Increased Spend per Customer.
  • Number 1 = Increased Loyalty via Channels, Discounts, Promotions, Loyalty Programs.
Do you see the significant difference between the two lists?

You'll have to look far and wide to find somebody talk about the importance of merchandise. I had a person tell me on Twitter that it is critical to find the right promotion for the right customer at the right time. Well, that may be true - but what exactly is the customer going to purchase with the right promotion at the right time?

Merchandise.

I was in a meeting recently, and I told the CEO that "the data suggests that customers don't like your merchandise anymore." Well, you would have thought a bomb went off in the room! Mind you, I had data that showed a significant and prolonged drop in merchandise productivity, but the room hated the message. Hated it! They thought that they might not be applying the right promotional mix to the business.

I was in another meeting recently, and the topic was channel alignment. The thesis was that if channels (mobile, retail, e-commerce, print) were better aligned, customers would spend more.

Really?

Look at what Microsoft does with channels. They have a tablet that is every bit as functional as an iPad. It integrates with killer apps like Outlook, Word, Excel. It's cheaper than an iPad. The desktop channel and the tablet channel and the mobile channel (Nokia 41 megapixel camera, wow) are all aligned and integrated.

It's an omnichannel wonderland!

And it doesn't work.

It doesn't work because of merchandise. Merchandise is what matters. Your iPad needs apps to work properly. The combination of tablet and apps represents merchandise.

So the metrics that matter most are merchandise related. You keep hearing stuff like "the customer is in charge". That's garbage. The customer is in charge of deciding what to do based on the information you provide the customer. If the merchandise isn't desirable, then what the heck difference does everything else make?

Merchandise productivity. 

Measure the metrics that matter most.

November 24, 2013

Storm Brewing?

Allow me to take a brief moment to tell you about a dream I had last week. Yes, I promise, the dream has everything to do with business.

See if you can spot the symbolism in the dream.

I'm staying at a hotel in Cannon Beach, OR. (Haystack Rock is depicted here). I'm hosting a party. Maybe fifty to one hundred people are attending.

I look out on the ocean, and guess what I see? Tornadoes ... or as they're frequently called when appearing over water ... waterspouts. With danger approaching, I scream "tornado", and point vigorously to the ocean. Nobody listens to me. So I run inside to tell my wife, a person who runs a catalog business, and a doctor that a tornado is fast approaching. I tell them that they must head to an interior room to protect themselves. These three people, whom I consider "smart", move to an interior room, though they do continue to enjoy the party, not embracing the true danger that I'm sensing. In fact, these three individuals perceive my actions as being a bit annoying, to be honest!

I head back out to the main room, and I notice that all of the party goers have assembled on the deck. They're sitting in chairs, pointing at the tornado that is now just a football field away from them. They're oblivious to what is coming. I scream at them to get inside, to get to an interior room. They ignore the information provided to them. They raise their drinks as the storm approaches, cheering it on, celebrating. Then, suddenly, one person in the crowd says "Oh my goodness, the tornado just killed that person." The crowd looks over the deck, stunned that people on the ground are dying. How could this be? The crowd looks up the coast, as a separate tornado destroys a water park that hosted numerous tourists. The crowd is stunned, but they don't move, they don't take cover inside. Seconds later, the tornado hits the deck. Mass carnage ensues. I run inside, sprinting to the kitchen. I pick up my keys and wallet from the counter top, thinking "at least I have the keys". The tornado hits the interior of the building, where I am swept up into the air.

End of dream.

It's fun to sit on the sidelines and cheer concepts like "omnichannel".

Sometimes you have the keys, and you can unlock the problem. Like with Merchandise Forensics. A CEO recently told one of my readers that "this merchandise stuff is like magic".

I've analyzed a ton of data in 2013. The data continually suggests that a storm is brewing. Many of us failed to invest in new products, and are now left with dying products that are not being replaced fast enough to maintain sales levels. Most of us are rapidly shifting the e-commerce side of our business to mobile (adapt or die), only to find that conversion rates are awful (often because we simply cannot feature enough merchandise to increase conversion rates in a mobile environment). Or worse, we find out that our customer is 61 years old, and is never going to "engage" with a mobile device like a 28 year old will.

A storm is brewing.

Will we fix the problem and save ourselves?

Will we head to an interior room and at least protect ourselves?

Or will we take a seat on the deck, pour ourselves a drink, and cheer as the storm approaches?

November 21, 2013

Best Practices

We keep reading about Best Practices - rules that you must follow, or your performance will be sub-optimized.

Where, in the pantheon of talk show excellence, is there a best practice stating that instead of employing a co-host, you trot out a robot and a fake horse?

Keep this in mind the next time somebody recommends that you focus on Best Practices - asking you to play it safe.

November 20, 2013

Dear Catalog CEOs: It Turned Out Different

Dear Catalog CEOs:

Thumb through the Internet Retailer Top 500 some day - just for giggles. Among the top 30 in the IR Top 500:
  • Only 3 Are Web-Only: Amazon, Netflix, Newegg. Interestingly, Amazon represents something like 25% of all e-commerce. Geez.
  • A whopping 17 are retail brands: Staples, Wal-Mart, Sears, Office Depot, Best Buy, OfficeMax, Macy's, Grainger, Costco, Target, Gap, Victoria's Secret, Williams Sonoma, Kohl's, Barnes 'n Noble, Nordstrom, Toys 'R' Us.
From 30 to 100, somewhere north of 35% of the businesses are classified as web only.

From 101 to 200, about 30% of the businesses are classified as web only ... with annual sales of about $150,000,000 ... totaling $15.0 billion ... about 25% of what Amazon does.

From 201 to 300, about 35% of the businesses are classified as web only ... with annual sales of about $75,000,000 ... totaling $7.5 billion ... about 12% of what Amazon does.

From 301 to 400, about 40% of the businesses are classified as web only ... with annual sales of around $37,000,000 ... totaling $3.7 billion ... about 6% of what Amazon does.

From 401 to 500, about 55% of the businesses are classified as web only ... with annual sales of around $25,000,000 ... totaling $2.5 billion ... about 3% of what Amazon does.

From 501 to 1,000, about 58% of the businesses are classified as web only ...with annual sales averaging $7,500,000 ... totaling $3.5 billion ... about 5% of what Amazon does.

This should cause us to pause, to think.
  • Amazon did $61 billion last year.
  • Companies 2-10 did $50 billion last year.
  • Companies 11-100 did roughly $110 billion last year, +/-.
  • Companies 101-1000 did $32 billion last year.
The "1%" in e-commerce generate more than 40% of e-commerce volume.

My goodness.

You were promised that "multichannel" would cause you to be successful. Remember all that mindless hype? Vendors, trade journalists, bloggers, consultants, they all told you that a combination of your catalog and e-commerce was unbeatable.

Wrong.

Those folks, with no skin in the game, sold us a story. 

While we focused on being multichannel, retailers transitioned their catalog business to e-commerce (like when I worked at Nordstrom), or they increased sales by 10% by adding a direct marketing channel that was previously (and foolishly) missing.

And Amazon, following a decidedly non-multichannel model, became e-commerce, mulching all of us in the process.

It turned out different than the experts told us it would turn out. 

There's the 1%, and then the rest of us.

The majority of e-commerce brands, as illustrated above, became niche players unable to crack the $30,000,000 barrier. There's something magical about that $30,000,000 level ... it's where the easy work ends, it's where the spending begins. And there's only so much you can spend in classic e-commerce (paid search, retargeting, affiliates, um, uh, hmm) before you have to branch out and try something different (or generate improved merchandise productivity).

So everything we were told was wrong. The average e-commerce business fills a niche. Retailers finally started a direct marketing channel, and because of sheer volume and brand equity, sucked the life out of direct marketing. And Amazon won the battle. Online, there's always one winner.

Where does this leave us?

Well, we've always been niche focused. No, not L.L. Bean, but if you are Cuddledown of Maine, you were never going to hit a billion dollars in sales.

And because of our lust for a multichannel model, because we overstated our matchbacks in order to keep mailing catalogs, we found our niche.

Our niche, of course, is 55+ rural customers who love being romanced via paper.

A pivot to a 28 year old shopper will require pain, coupled with a low probability of success.

A pivot to a 44 year old shopper is possible, but requires taking Amazon head-on. Good luck.

It's time to start giving serious thought to what the future looks like. The "multichannel" strategy of the past decade didn't work. Where do we go from here?

November 19, 2013

Amazon and Ads

Looking for Christmas lights on Amazon, look at what I see below the fold, on the left-hand side of the page?

If you click on word "Advertisement", you'll get to answer a brief survey - you'll get to tell Amazon if the ad is relevant or not.

You can learn about interest-based ads on Amazon by clicking here.

The ads, of course, take you to various landing pages on Amazon's site - which suggests that the brands on the site are paying for the ads, to steer the customer to their landing pages - a version of co-op funding, I suppose.

I know, I know, co-op dollars are evil - they're clearly not a best practice, are they?

I share this, of course, because I'm asking you to think. We've homogenized ourselves into a series of a dozen best practices designed to guarantee success. And yet, we grow at the same, miserable, tepid rate we've grown at for a decade (well, not all of us, but many of us). So at some point you just ask yourself, "what good are all these best practices"?

Amazon is double-dipping ... getting vendors to pay, getting you to pay.

You're losing business to Amazon.

Take a few minutes, and think about this. I'm not saying you should take vendor-based ads on your site. I'm saying you should think about various business models. Especially if you're a cataloger looking to offset future postage increases.

Yelp and Merchandise Forensics

If you travel, you know that Yelp and those who compete with Yelp are particularly helpful.

Yelp shifts demand.

Let's say that you visit a town with 30 restaurants, all earning an average of $750,000 in sales per year, all generating $75,000 pre-tax profit (this is being done for illustrative purposes, no claims for accuracy other than a few simple Google searches). Let's say that 5% of the traffic is tourist traffic that is impacted by Yelp. In other words, $37,500 of demand per store is up for grabs, steered by Yelp and similar apps.

Let's say that your expense structure looks something like this:
  • 35% of costs are for food.
  • 35% of costs are for salaries (essentially fixed).
  • 20% of costs are for overhead (essentially fixed).
The pre-Yelp profit and loss statement looks like this:
  • Demand/Sales = $750,000.
  • Variable Costs (food/drink) = $262,500.
  • Labor = $262,500.
  • Overhead = $150,000.
  • Profit = $75,000.
In a Yelp-fueled environment (shifting 5% of total market demand to establishments favored by Yelp), the top 10 rated restaurants capture $37,500 * 30 / 10 = $112,500 per store. The bottom 20 rated restaurants all lose $37,500 each.

Yelp-fueled restaurants:
  • Demand/Sales = $862,500.
  • Variable Costs (food/drink) = $301,875.
  • Labor = $262,500 (though you could make a case you need more staff).
  • Overhead = $150,000.
  • Profit = $148,125 ... 17% of sales.
Yelp-penalized restaurants:

  • Demand/Sales = $712,500.
  • Variable Costs (food/drink) = $249,375.
  • Labor = $262,500 (though you could make a case you need fewer staff).
  • Overhead = $150,000.
  • Profit = $50,625 ... 7% of sales.
I know, this example is unfair, because the best restaurants would already have a disproportionate sales advantage ... but I'm doing this for illustrative impact. I'm trying to show how our current marketing environment causes subtle shifts, subtle shifts that result in major impact on the profit and loss statement.

In my example, 10 restaurants accelerate to winner status ... 20 restaurants fade just ever so slightly, with a big impact on profitability.

A similar thing is happening in my Merchandise Forensics projects, within companies, and across companies.
  • Google plays the role of Yelp, with a comparable impact on your profit and loss statement. To a much, much smaller degree, social media plays this role as well.
  • Your own marketing efforts (mostly email, home page, and landing page strategy) act as Yelp, steering demand to the items you focus on.
  • Amazon simply cannibalizes your business, acting as a Yelp-penalizer effect.
Combined, the examples you see above apply to your business as well.

This is why it is so critical to perform Merchandise Forensics work - within your own business, you are causing the Yelp effect that I illustrate above. You have to understand the dynamic, and measure how it impacts marketing productivity.

November 18, 2013

Everlane - Transparent Pricing And Lean Inventory Levels

Have you heard of Everlane? (courtesy of @dannysauter):






You'd almost think you were looking at the rebirth of Lands' End, two generations removed.

Now, let's be honest. They may not make it. There's that dilly of a $30,000,000 pickle (annual net sales) that seems to be a real hurdle that is tough to get over.

Even more interesting than transparent pricing is the inventory strategy ... always buying "too little" inventory to satisfy demand. I remember seeing this type of model when I worked at Nordstrom - once you've been burned by liquidations, you don't ever want to have too much of anything. So if you can get 80% of what a customer wants, or 70%, then yes, you're going to disappoint a lot of customers, but you're also going to create urgency.

Urgency at full price.

Too many businesses create urgency by having short-term promotions (40% off on Cyber Monday only).

You can create urgency by telling your customers to get it now, before it is gone ... and do that at full price.

We'll see how this works.

Attribution / Matchback Vendor Advice

Readers - I may be looking to partner with an attribution/matchback vendor on a thousand lines of interesting code that allows me to see how customers behave in the future, based on advertising investments made today.

Who do you like working with? Why do you like working with them?

Send me an email (kevinh@minethatdata.com) with your preferred attribution/matchback vendor, and what impresses you about the folks you work with.

Thanks,
Kevin

November 17, 2013

Caring About Merchandise

There are three places where you can truly tell what a business/marketer cares about.
  1. Catalog Covers.
  2. Email Content.
  3. Home Page ... classic or mobile.
This catalog cover tells us that Chefs loves catalogs. They love catalogs so much they hold the customer hostage. You may remember this tactics from the early 90s, when, if you were cut off, you didn't learn about the business anymore - that was truly it!

How much merchandise do you see on the cover of this catalog?

Let's visit the home page, and see what is offered to us:
We see three items featured, so that's good.

Now, how many discount/promotional messages do we see?
  • Free Standard Shipping.
  • Save $20 on a Roasting Pan.
  • Save $155 on a Carving Set.
  • Save up to $130 on Flatware.
  • Final Days for Free Thanksgiving Delivery.
  • Fall Giveaway, Chance To Win Daily Prizes.
  • Shop Thanksgiving Sale.
  • Free Return Shipping.
  • Thanksgiving Sale - save up to 50%.
I count at least nine sale/promotional message. Nine.

Heck, valuable home page real estate is given to a blog ... a BLOG! 

If we go below the fold, then we see merchandise - six of the top eight items are on sale, furthering the sale messaging to the customer. 


Yes, they're favorites, and we know what happens in the Merchandise Forensics framework when you over-emphasize best sellers and do not develop new items. But items are featured. Interestingly, the items are "customer favorites" - not the items that the merchants/marketers are passionate about.

I am not saying that this style of presentation leads to above/below average conversion rates.

I am not saying this strategy is right/wrong.

I am only saying that we know where merchandise stands on the pecking order.

Amazon mulched all of us. Amazon relentlessly pushes merchandise at us.

Pay close attention to what companies feature in email, on the home page, on the mobile home page, and on catalog covers. You'll learn what the company truly values. And as we all know, we attract customers who share our values.

November 14, 2013

Dear Catalog CEOs: The Deeper Meaning Of Amazon And USPS

Dear Catalog CEOs:

Well - you and the vendor community sure enjoyed this rant (click here), after the USPS agreed to deliver Amazon packages on Sundays in NY/LA this year, more markets next yearThis article is trending toward a top-10 readership level for 2013. In other words, you are interested in the topic.

You understand, of course, that there is a much deeper meaning than just Amazon and the USPS, that there's so much more to this story that their relationship?

In 1993, cataloging was at the top of the food chain. Your vendors were there to support you. You had the power, they needed your money.

In 2003, Google and search and all pre-social, pre-mobile activities were peaking. Your vendors worked hard to coin the phrase "multi-channel", encouraging you to keep mailing catalogs, so that they could still remain relevant.

In 2013, with catalog in-mail volumes down 40% from 2007 (no, that's not just the Great Recession, that's the realization that the world is changing), your vendors are now searching for their path to the future, independent of you.

Think I'm wrong?

I was in a meeting recently where the marketing director told me she couldn't reduce circulation because their paper rep locked them into a six month, non-negotiable supply of paper. Obviously, the paper rep isn't thinking about what is best for the cataloger (though I bet the paper rep could find more paper if the cataloger needed it). No, the paper rep is trying to put food on the table, and can now do that for another six months.

I was in a meeting recently where I learned all sorts of interesting things that some co-ops are doing with your data. They realize that your mail volume will decline another 40% over the next six years, so they are busy using your customer acquisition investments to research how to best integrate offline transactions with social/mobile/local data, to provide a 360 degree view of customer behavior that can be sold to "brands". Pay attention to how this works - you contribute data for free - they make you pay for access to data, then they use your money to create products that allow "brands" to pay to access the data a second, a third, a fourth, an eleven-thousandth time.

Big Data!

In other words, this co-op no longer cares about you, the cataloger - if they did, they'd put experienced reps and modelers on your account and actually protect your data as a competitive advantage for your continued loyalty to them. You are just a data input. Remember back in the mid 1990s when the co-ops begged (yes, begged, I was there) for you to participate with them? When's the last time your co-op begged you for anything? No, your co-op has moved on, and is charting a path to a future where you are nothing more than a data input to them. It's been that way for some time, to be honest.

The USPS is charting a path to the future, and hint, it only includes the merchandise you sell, not the delivery vehicle that creates the sale (the catalog) ... hence, a partnership with Amazon.

I was in a meeting recently where a printer-backed start-up told me that their marching orders were not the product they were selling to catalogers, but the data that the catalog customer would create for them. This is coming from a printer-backed start-up ... a printer ... a printer looking for a path to the future. The printer realizes that it must find a path to the future, and that path will be less and less dependent upon you, over time.

Your search vendor, your email vendor, your database hosting company, those who work in your affiliate program, or retargeting, your matchback vendor, your attribution vendor, they're all using your data as a short-term bridge to help them get to the future. 

That future, of course, is Mobile + Data + Social + Local = Youth + Revenue.

Your vendors are leaving you. Notice that they aren't firing you. 

They need your money so they can invest in Mobile + Data + Social + Local = Youth + Revenue.

You are funding their future.

This is the deeper meaning of the Amazon/USPS relationship. The USPS is using your postage to invest in a future with e-commerce brands needing to deliver merchandise in real time.

Twenty years ago, Amazon didn't exist, and your vendors needed you.

Today, Amazon is on the verge of crushing most standalone direct marketers. Your vendors need a path to the future that likely does not include you.

The multichannel experiment failed miserably, for if it were successful, Amazon would have lost and the USPS would be giving you incessant discounts to keep your business - or the USPS would be offering you Sunday delivery. The customer chose Amazon. The USPS chose Amazon. Multichannel lost.

It's time for you to do two things.
  1. Choose vendors who help you get to the future.
  2. Choose your own path to the future.
Can we (our industry) have a meaningful discussion about our shared future? I'll help facilitate this discussion. Email me (kevinh@minethatdata.com) with your thoughts.

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.


November 12, 2013

Gap Omnichannel Article

Here's one for you - give this a read (click here).

Everybody has a different take on what "omnichannel" really means. Too often, it's an "inventory / fulfillment" solution. We can turn physical stores into digital distribution centers. 

Or, we could figure out what makes for a magical retail shopping experience in an era where every piece of knowledge ever contained in the world is available in one's own hand, on demand.

The latter is the real issue.

Dear Catalog CEOs: Amazon + USPS = You Do Not Count

Dear Catalog CEOs:

Well, you've been humiliated once again (click here please).

You sold your wares on Amazon, teaching Amazon what sells and what doesn't sell. Amazon used that information, and is now headed toward $100,000,000,000 (yes, that's one-tenth of a trillion dollars of annual sales ... it will take less than three years to get there at current growth rates). In a total market where growth is at or less than inflation, that level of sales volume has to come at your expense, don't you think?

Meanwhile, you are busy lobbying a dysfunctional Congress to keep the USPS viable. You are fighting to help the USPS, because, of course, helping the USPS stay viable allegedly keeps your business viable.

And while you're busy lobbying to help the USPS (spending your time helping the USPS, not spending that time selling your own wares via e-commerce - how silly is that when you stop to think about it), here's what the USPS thinks of you:
  1. Considers ending Saturday delivery of your catalogs.
  2. Strongly considers significant postage increases - charging you significantly more for the same level of service.
  3. Provides your biggest competitor, a non-cataloger named Amazon, a business that does not fund the USPS via the kind of postage you pay, exclusive Sunday delivery of their products in major markets (NY/LA this year, many more next year), helping run you out of business even faster.
How utterly feckless can our industry be? 

I mean, you paid postage for decades - decades! You funded the pensions of the very Executives who decided to sell out to Amazon - and I get it, Amazon is getting close to being bigger than all of us put together, it's hard to blame the USPS. But come on! Do you treat your loyal customers this way?

This tells us that the future of the USPS is not the mailing of pieces of paper - it's the delivery of merchandise. When viewed via that perspective, Amazon should get top priority.

Merchandise.

Remember, you funded the USPS so that they could get to this point where they pivot to serving Amazon better than they serve you.

Our industry is Charlie Brown, with the USPS + Amazon playing the role of Lucy, pulling the football out at the last second of an attempted kick.

It's common for postage to represent 5% to 10% of annual net sales - often equal to 50% to 80% of all other fixed costs incurred by your business. Think about that whopper of a statement for a moment. You spend more on postage than almost anything else.

How has your loyalty been recognized by the USPS?

When are you going to stand up for yourselves and say "ENOUGH"?

As Lucy says at the end of this video ... "Isn't it peculiar, Charlie Brown, how some traditions just slowly fade away?" (click here for the video if you follow via email or RSS). The USPS/Amazon Sunday partnership helps facilitate the evolution of our tradition. 

Only you can fix this. 

You know what you have to do to evolve. Your future involves spending much less money with the USPS. Time to get busy. It's clear the USPS and Amazon don't care about you. We knew Amazon didn't care. Now we know how the USPS feels about you. Get busy.


25 Random Observations And Questions

1 - If we learned the cautionary tale that you kill yourself when you stop offering discounts and promotions (i.e. JCP), then why was JCP struggling so badly leading up to 2011 when it still generously offered discounts and promotions?

2 - If omnichannel and bricks 'n clicks are the future, then how do you explain why Borders went out of business? Bonus questions ... how do you explain that Barnes and Noble didn't gain market share when Borders went out of business ... and how do you explain that Amazon, without a retail presence, sells books and eats into retail book store market share?

3 - If omnichannel and bricks 'n clicks are the future, then why did Blockbuster Video die while Netflix thrived? Wouldn't the retail presence have been enough to crush Netflix? And if your answer is that Blockbuster made key strategic errors, then shouldn't we be worrying about merchandising/service strategy first while giving omnichannel very little attention?

4 - Assume that omnichannel and bricks 'n clicks are the future and Macy's is the omnichannel poster child for omnichannel success. Why, then, is Macy's consistently posting negative comp store sales results? And if your answer is "it's merchandise, stupid", then why are we choosing to not focus all our efforts on merchandise?

5 - If catalogs are a vital part of an omnichannel future, then why have total catalogs mailed declined by a whopping 40% in the past six years (click here)?

6 - If mobile is the future, and it most assuredly is the short-term future, and if most folks will access your brand via mobile within three years, then why are mobile conversion rates so horrifically awful, even among rabid early adopters, and what does that mean to the future of e-commerce?

7 - What does it mean for the future of catalog marketing when the average catalog customer is sixty years old?

8 - Explain why Safeway requires a club card for cheap prices and loves couponing, but Trader Joes can sell at full price and thrive?

9 - Why do you happily pay Amazon $79 a year ahead of time to get products shipped to you, but you won't buy from your favorite e-commerce brand unless they offer you free shipping?

10 - What did Amazon do different than everybody else to achieve an approximate 25% e-commerce market share? And why do we think that the solution to this battle is to simply become more "omnichannel", a solution that seems to have only helped Amazon get bigger?

11 - How do you plan on keeping your business on level ground under the assumption that Amazon could represent 40% of e-commerce in five years?

12 - Why does Forrester Research promote a digital / social / mobile / big data / omnichannel future, but use Direct Mail to generate business? Furthermore, why does Forrester Research describe their own social media practices in their 2012 annual statement as not materially moving the sales line? In other words, why is the research brand responsible for promoting a digital future not capable of fully leveraging digital for it's own future?

13 - Of what value is it to generate $2,000,000 of Cyber Monday demand at 30% off plus free shipping at a 40% gross margin when you could generate $1,000,000 of Cyber Monday demand at full price and a 60% gross margin?

14 - If "All Magic Comes With A Price", why are so many of us willing to pay that price?

15 - Why would the USPS consider cutting Saturday service for catalogers while jacking up the price of a catalog mailed to a customer, but happily accept money from Amazon to deliver Amazon's packages to your home on Sunday in major markets, helping put you out of business in the process? Discuss.

16 - How, in a mobile environment, do you plan on sharing your full assortment with your customer, when you are so limited by what you can share with your customer in a mobile environment?

17 - If you promote an omnichannel future of sameness across all channels, then why do you allow your email marketing team to offer discounts and promotions that are not available to best customers who fully use all other channels but do not subscribe to your email channel?

18 - If you built a business on search engine optimization - in essence - if you built a business on free traffic and free information from Google, then aren't you, and not Google, accountable for the problems you face now that Google has essentially repealed organic search keyword information? Remember, all magic comes with a price.

19 - How many new products did your company launch in 2013? What percentage of these products became best sellers? How did this rate change vs. 2012? If you don't know the answer to these questions, describe the ways you are at a competitive disadvantage to those who know the answer to these questions.

20 - Why do you match back orders to your catalog that would happen anyway, even when you have the mail/holdout test results to prove that you should not practice this "best practice"? Are you worried about what will happen to the future of your catalog if you do what is truly most accurate and most profitable for your business?

21 - If you ask 100 attribution vendors to allocate orders to marketing activities, and you get 100 different answers, how exactly do you know which answer is the right answer?

22 - If all channels are supposed to be representative of our brand, and by aligning all channels perfectly we achieve omnichannel excellence, then please describe why Microsoft, first with the Zune music player, and today with the Surface tablet (which integrates with your desktop so well that you can use Outlook or Excel or Word - killer apps, right), is unable to make a dent on what Apple accomplished? And if your answer is that Apple has all the apps, well, then didn't you just prove the point of how meaningless omnichannel really is, because you've just demonstrated the importance of product (apps)? And if you've just demonstrated that product/apps/merchandise are so important, then why are your practices and analytics not aligned around merchandise in the first place? Discuss.

23 - If social media engagement is the difference between success and failure, then wouldn't Best Buy, with their Twelpforce, be crushing the competition?

24 - If social media should not be measured via sales and profit, but instead, via engagement and metrics aligned with anything that is non-revenue producing, then describe why your company should continue to invest $80,000 in salary plus benefits for your position, when your company could invest your $80,000 salary in paid search and generate $250,000 of sales and $20,000 profit?

25 - Is it possible that you and your co-workers, and not vendors / trade journalists / bloggers / social experts / mobile experts / management consultants / researchers, are most knowledgeable about the dynamics surrounding customer behavior at your business?

November 11, 2013

The Relationship Between Product Density And Conversion Rate

Here's a way to think about conversion rate, in absence of marketing activities.

Your "brand", if you will, is responsible for generating half or more of your conversion rate. Customers decide they want to buy from your business, generating a significant amount of the conversion rate.

After we account for customers who "had an agenda" and were going to buy, regardless, we have everybody else. These customers need to be informed.

We inform customers via merchandise, we inform customers via discounts/promotions, and we inform customers via creative/imagery.

And when we minimize the amount of information presented to the customer, we minimize our conversion rate.

This is happening in mobile. We're unable (at this time) to provide as much information as we can on a website, or via a catalog. This drives conversion rates down.

When we drive conversion rates down, we respond by offering deeper discounts/promotions, or we gamify the experience (cheap prices end at 11:00am, act now).

When we attract customers via discounts/promotions, we shift the focus away from merchandise.


In other words - mobile is (at this time) shifting the focus away from merchandise. The form factor employed by mobile demands this - the customer has to know what the customer wants before hand, using mobile to simply transact. The art of getting the customer to "shop" is, at this time, not part of the mobile experience.

Just as interesting - when we reduce the amount of merchandise featured on a mobile website, we, by default, try to jack up conversion rates by offering the best products, the ones most likely to increase conversion rates. This leads to a small amount of highly productive "winners", and everything else that sells less well - in fact, selling at lower rates than forecast, causing us to have to increase liquidation activities, hammering gross margins in the process.

The whole process is quite interesting to observe.

The ramifications are significant, and worth considering.

November 10, 2013

The Merchandise Tournament Bracket

Do you really want to optimize your email marketing campaigns? And no, I'm not talking about A/B testing 30% off against 10% off plus free shipping - that doesn't push the peanut.

No, it's time to help your merchandising team.

Here's what I want you to do.
  1. Pick eight new items that have sold reasonably well in October/November.
  2. Randomly match up the eight items, in a tournament bracket.
  3. In email campaign #1, match up item 1 vs. item 2. Tell the customer you're running a tournament, and the item that sells best "wins", and advances to the next round.
  4. In email campaign #2, match up item 3 vs. item 4 - same premise.
  5. In email campaign #3, match up item 5 vs. item 6 - same premise.
  6. In email campaign #4, match up item 7 vs. item 8 - same premise.
  7. In email campaign #5, match up the winner of 1/2 against the winner of 3/4.
  8. In email campaign #6, match up the winner of 5/6 against the winner of 7/8.
  9. In the championship, match up the winner of 1/2/3/4 against the winner of 5/6/7/8.
What do you get for doing something like this?
  1. Your customers will tell you the new items that they like the most (let them "like" various items - measure via sales (80%) and likes (20%) - sort of like "Dancing With The Stars", if you will.
  2. You promote/advertise new items, and based on my work this year, most of us desperately need to promote/advertise new items.
  3. You do something different than the same, boring, 20% off plus free shipping that plagues email marketing.
  4. You can promote the tournament bracket across Facebook and Twitter - pleasing the omnichannel advocates to no end - you partner with your customers. Think of the virality of it all?!
  5. You "engage" your email subscriber list - theoretically pleasing everybody.
What would stop you from doing this? What would stop you to focus on selling, to not focus on teaching your best customers about your best new items?

Discuss.

November 07, 2013

Billion Dollar Startups - And The Companies We Work For

In the trade journals, we seldom hear about the success of a store like, say, Pottery Barn. Instead, we hear about the new businesses that break through - we're told that they are "the future", and if we don't keep up, our business model is "dead".


There are a few companies that are e-commerce related that broke through to a billion or more in valuation. Tell me what you see.

Here's RetailMeNot:


Next up is Groupon:

Third is Gilt:

Fourth is Zulily:

And finally, Fab.com:

None of these businesses are Cuddledown of Maine, are they?

With the exception of Fab, who seems to be pivoting in all sorts of chaotic directions, the companies that "won" either sold your products at dramatic discounts, or sold their products at markdown.

Is it any wonder that this is all you ever hear about? Discounts. Deals. 

Notice, of course, that the article suggests that the odds of earning a billion dollar valuation are about 1 in 1,500. So yes, you hear all this discounting nonsense, but if you were to start your own business seeking VC funding, the odds of getting to a billion dollar valuation are close to zero.

Close to zero.

Meanwhile, few (if any) people ever talk about a business like Chasing Fire-Flies ... largely bootstrapped on profit until selling to HSN for tens of millions of dollars ... selling proprietary merchandise at full price. That's not fun to talk about, is it? Heck, they're catalogers. 

Catalogers!! That stuff is dead. Unless somebody cut you an eight figure check.

So - discount yourself to death, have at it, it's fun, people talk about it, and you can really ring the sales meter. And if you're starting from scratch today, you've got virtually no chance of winning the lottery. But again, people will talk about you - ENGAGEMENT! Based on what we read, you'd rather have engagement than profit. And if you win the lottery, you REALLY win the lottery!

Or you can build a solid business, take 4-7 years doing it, get to $40,000,000 in annual sales and $4,000,000 in annual profit, and sell for eight figures.

The latter doesn't seem like failure, does it? Sure, you may not succeed, but your odds of success will be better than 1 in 1,500.