August 18, 2015

Channel Management - Makers & Takers

Have you read this one - from Buzzfeed of all places (click here)?

  • 1,000,000 Nordstrom Rack customers upgraded to first purchases at a Full Line Store and/or
I know, I know, I can hear the complaints now.
  • "Kevin, you used to work at Nordstrom, so you are biased."
The omnichannel movement is all about getting the same customer to use every channel.

Why not get many customers to use many channels, independent of each other?

Nordstrom Rack merchandise is not integrated with the Full Line Stores, is it?

Nordstrom Rack pricing is vastly different than than pricing at a Full Line Store, isn't it?

Nordstrom Rack customers are younger, while Nordstrom Full Line Store customers continue to age ... it's essentially not the same customer, is it?

So if 10% to 20% of the customer files overlap, then everybody wins.
  • Incremental purchases at an off-price channel.
  • A fraction of the customers upgrade, and are fed into the Full Line Store channel at minimal customer acquisition cost to the Full Line Store channel.
Where would Nordstrom retail growth be without Rack?

In classic channel management, you have two dynamics.
  • Makers - channels that create customers.
  • Takers - channels that take customer created by other channels.
From 1995 - 2005, cataloging created customers, the online channel was the "taker". Then, the online channel took all the customers, rendering cataloging a niche marketing channel tailored to customers age 60-89.

From 2002 - 2012, the online channel created customers (after taking them from catalogers, no less), then the retail channel was the "taker". This led to the theory that channels had to integrate, so that the online researcher would purchase in a store.

From 2012 - 2015, the dynamic reversed - you've seen this, too, you measure this stuff, right? Right?! Once the online channel reached a sufficient level of maturity and service potential, the dynamic reversed - the retail channel created customers, the online channel reverted back to taking customers from retail. This dynamic is really, really bad for retail, because the dynamic doesn't allow for comp store sales growth as customers are slowly taken by the online channel, causing fixed costs to de-leverage (i.e. causing finance folks to need to close stores).

From 2012 - 2015, e-commerce was the maker, creating customers. Mobile was the taker, taking customers cultivated by e-commerce and converting them to the newer channel. Again, we're all going to misinterpret this - we'll say we must integrate the e-commerce and mobile experience. That's a mis-read of a classic channel shift dynamic that we've observed for twenty years (catalogs vs. e-commerce) and failed to understand. Remember when everybody grumbled that mobile conversion rates were horrible? That's a complete mis-read of a shift in channel dynamics ... same thing happened when e-commerce conversion rates were 2% and catalog response rates were 7% ... we were simply measuring everything wrong ... on a monthly basis, response was comparable. In mobile, the best customers, the obsessive browsers, converted quickly (low conversion rates), and were measured poorly.

Channel dynamics are not constant. They continually evolve. They must be measured. Must be. If we listen to pundits and don't perform our own due diligence, we'll simply be at the mercy of vendors selling solutions. Times are changing. We need to create businesses where channels feed each other, constantly supplying new customers into the ecosystem, new customers that are then migrated along or are kept within a portion of the ecosystem.