October 07, 2015

How Algorithms Are Evolving Our Businesses

For so many catalogers, the issue in 2015 is new customer acquisition. It's become terribly hard to acquire new customers.

There's a good reason for this. 

Algorithms.

Algorithms need data.

The smartest companies get you to pay them to collect data. Think Google - you pay them $0.60 a click, and in the process, they get to collect data about the person who clicked. Oh, and they get to collect data about every non-click as well. You fund the non-clicks. So you pay Google money, Google sends you clicks, and then Google asks you to use their software to analyze whether the clicks you paid for purchased or not. When you use Google Analytics, you give Google more data about how your customers behave, data they would not normally receive. All of this data is algorithmically used by Google to benefit Google.

As a result, Google knows that the catalog customer is 62 years old.

You pay Facebook, too. You were told to build your audience on Facebook, organically, for free. Then, when your audience peaked, Facebook figured out how to get you to pay to speak to the audience you helped Facebook create. Nicely done. Facebook takes your money, and slices and dices your customer based on behavior within Facebook and the sliced/diced data you indirectly pay some of the co-ops for ... yes, you give your data to some of the co-ops for free, they make you pay for sliced/diced names, then they partner with Facebook to create even more thorough profiles of customer behavior ... offline, online, and within Facebook. All of this data is algorithmically used by Facebook & some of your co-ops to benefit Facebook and some of your co-ops.

You pay Amazon, too. You sell your products there, allowing Amazon to collect a fee on each purchase, and more importantly, collect data on how your customers behave when shopping for your products on Amazon. This allows Amazon to craft algorithms to target your customers.

You pay the retargeting folks ... those folks track your customers all over the web, algorithmically determining what your customer should see as your customer travels the wide expanses of the online ecosystem.

Each of the 000s of companies you are paying are building algorithms, using algorithms, or are letting machines learn how to build their own algorithms.

The algorithms interact with each other, creating unexpected outcomes.

Catalogers know this all too well.

In the past five years, the average age of the catalog shopper has gotten old, quickly. The algorithms are interacting with each other. They know that the catalog shopper averages 62 years old, often older. The traffic Google and Facebook and the co-ops and the retargeters and affiliates and countless others send you represent traffic that peculated to the top of the algorithm flow chart. Those customers are older. Older customers have specific merchandise preferences.

Now your own algorithms take over, and further impact you. Sure, you call it "reporting", but be honest, it's just a simple algorithm. The co-ops and Google and Facebook and the retargeters and affiliates and countless others send you older traffic, and the older traffic has specific merchandise preferences. In 2000, those were the preferences of a 47 year old. That customer cared about mainstream, middle-aged merchandise. Your merchants responded, offering additional mainstream, middle-aged items that mainstream, middle-aged customers wanted. But today, your merchants offer stuff that older customers like, and your merchants offer stuff that younger customers like. The 62 year old sent to you by the vendor community sees each assortment, and buys the stuff that older customers like. Your algorithm (reporting analyzed by your merchants) clearly shows that stuff that 62 year olds like is the stuff that is selling best. Your merchants respond by getting more of that stuff - the opposite of the "fast fashion" movement that is fueled by a mobile vendor ecosystem that interacts with retailers catering to a younger customer.

If you are a catalog that has been around for at least twenty years, do me a favor. Go pull out a catalog from 1995, and compare it to a catalog from 2015. Objectively look at the styles featured in the first twenty pages of each catalog. Tell me that you are still marketing to a 47 year old customer, after you look at the styles offered and the models wearing them.

The algorithms ... complex machine learning algorithms at Google all the way down to merchandising reporting ... are interacting with each other, driving the age of your customer base north, driving the merchandise assortment to something that an AARP member would crave. Your merchandising team buys more of the stuff that an AARP member would like, and as a result, Google and Facebook and the co-ops all respond in kind, sending names that would like this product, driving your merchandise assortment even further from the mainstream.

You won't find many catalog vendors or catalog consultants or catalog gurus who talk about this. They don't want you to know this, because if you knew this, you'd question your long-term viability, and you'll question your circulation plan going forward. When you question your long-term circulation plan, you put vendor livelihoods at risk. They don't want that. So nobody talks about this topic. Everybody keeps quiet. 

And that does a real disservice to our businesses, don't you think?

Talk about this topic. Think. Have an honest discussion. Or not. Either way, the algorithms are sending your business down a path you didn't anticipate five years ago. Take control back from the algorithms. Please!