July 30, 2015

Over and Under Assorted

Both issues lead to problems.

You see the over assortment problem all the time. You used to have 10 winners and 90 contenders ... then you expand the assortment and two years later you have 11 winners and 140 contenders. This is what over assortment looks like.

Financially strapped businesses create a cycle of despair. Last year, they had 5 winners and 70 contenders ... given poor financials, they invest in fewer new items ... a year later, they have 5 winners and 55 contenders ... two years later, they have 3 winners and 45 contenders ... three years later, they are out of business.

If you are a marketer, you measure this stuff, right? It isn't your fault when productivity wanes because of assortment issues. It is your fault if you aren't measuring the dynamic. Help your merchandising team be successful. It's better to invest in the understanding of how customers purchase your merchandise than it is to invest in the understanding of how customers get to your merchandise.

July 29, 2015

A Pricing Cycle

Here's a common dynamic in my projects ... see if this happens at your company.
  1. Your average price point is $40.00.
  2. Customer response is not good.
  3. You offer 20% off plus free shipping.
  4. Customer response improves.
  5. Profit looks bad.
  6. Finance and/or Merchandising doesn't like making no $ whatsoever.
  7. Finance and/or Merchandising charges more for new items.
  8. Customer response to expensive items is not good.
  9. You offer 30% off plus free shipping.
  10. Customer response improves.
  11. Profit looks bad.
  12. Repeat 6-11.
Briefly describe what the end-game looks like in this scenario ...

July 28, 2015

Catalogers No Longer Compete Against Each Other - So I Introduce To You ... PAPER TUESDAY!!

July 28 was a popular in-home date.

Here's the thing. 

Catalogers no longer compete against each other. Catalogers are a loose federation of common brands with a shared ethos.

Just look at the covers. Dots. Discounts. Savings. Freebies. And all arriving in-home on the same day. Heck - look at the Talbots & Pendleton cover models - similar hair, both smiling.

Everything is the same.
  • Same customer list (Abacus and others and/or Private Equity shared databases).
  • Same printers.
  • Same merge/purge houses.
  • Same database vendors.
  • Same housefile modeling vendors.
  • Same email vendors.
  • Same paid search vendors.
  • Same online marketing vendors.
  • Same set of a dozen +/- consultants who make key decisions.
  • Same industry conference with similar sessions paid for by the same housefile modeling vendors and co-ops that everybody uses.
  • Same Executives who have worked at every-other company, moving every-three-years to better opportunities.
  • Same 2-3 trade journals that have covered the industry for three decades.
This isn't good. This isn't bad. This just "is".

And since it "is" what it is, we may as well recognize it and then capitalize upon it. If Amazon can create a fake holiday and generate Christmas-level business in July, and if Shop.org can astroturf Cyber Monday into a commerce holiday for online businesses, then why can't we work together to create PAPER TUESDAY?

I'll set the date ... NOVEMBER 10 IS PAPER TUESDAY ... the second Tuesday in November from this day forward will be known as PAPER TUESDAY.

PAPER TUESDAY will be the day that all catalogers work together, a day when all catalog vendors work together, pitching-in to drive sales and profit for CATALOGERS. Best of all, since all catalogers are essentially in the same family, supporting each other, each catalog brand will cross-promote the new holiday, driving business for each other. Your co-op will make sure to give you the best deals possible for names likely to buy on Paper Tuesday. Your database vendor (or co-op) will significantly discount matching of names across companies, identifying and segmenting customers that buy from 20+ catalogers a year, so that you know who the customers are that are most likely to fully embrace Paper Tuesday. Your favorite trade journals will actually support the holiday and will rally the troops via outstanding communications that you will want to read, causing readership to go up, causing more vendors to want to pay trade journalists, making trade journalists money.

Your paper rep will heavily discount Paper Tuesday catalogs, so that you can send many more catalogs and therefore build your housefile and consequently make your paper rep more money in the future.

Your printer will discount services so that you can mail deeper, making Paper Tuesday a success. Your printer will pay for television ads that tell your 62 year old target customer that Paper Tuesday is coming. All of this activity will strengthen your housefile, allowing your printer to make more money next year. Heck, your printer will recommend a small-format, eight page Paper Tuesday mailer designed to drive sales on Paper Tuesday, and they will make it reasonable for you to mail this small piece.

Your PAPER TUESDAY discounts will be better than your CYBER MONDAY discounts - and you will tell your customers this fact as well - so that your customers shop with you on Paper Tuesday and will give you their dollars before they hand over money to e-commerce and big-box retail brands three weeks later.

Your email campaigns will communicate Paper Tuesday - and will tell the customer that this is an industry-wide event. You will help your partner catalog companies ... and your catalog company partners will help you.

If you love discounts, and I know you love discounts, then discount items that Amazon does not sell. Feature those items on Paper Tuesday. Heavily promote items that the customer cannot buy on Amazon or on a big box e-commerce website. Sell the stuff that gives you a competitive advantage.

If you're going to do everything the same on July 28 in an uncoordinated manner, why not act like one industry, for one day, on November 10 (the second Tuesday of November) - and make PAPER TUESDAY the biggest day of the catalog shopping year?

Every major catalog vendor reads this blog.

Most major catalog industry consultants read this blog.

Most major catalog brands have employees who read this blog.

Many classic catalogers - names you all know and trust - read this blog.

In other words, everybody in the industry is going to see this message.

So why not go do something about it? Why not work with your industry partners, and formally cross promote something that benefits all of us?

July 27, 2015

Returns - Are You Committing Two Tactical Mistakes?

A tale of two items.
  • Item #1 = 100 units sold, $50 price, 40% return rate, 50% gross margin, $1,500 gross margin dollars kept.
  • Item #2 = 80 units sold, $50 price, 10% return rate, 50% gross margin, $1,800 gross margin dollars kept.
Which item would you prefer, if you could only run with one item?

In some of my Merchandise Forensics projects, merchandise productivity is fine, but gross margin productivity is awful ... it's awful because of returns.

Make sure your merchandising team looks at reports that evaluate return rates by item. If an item consistently exhibits high returns rates, ask yourself why you feature that item? If volume is high, then fine. But if volume is average or poor, this item is hurting profitability.

In other projects, an odd dynamic happens. The client is acquiring customers who are pre-disposed to return merchandise.

Can I tell you a brief story? It's 1993. My boss and my Director ask me to create a statistical model that minimizes catalog mailings to customers who return a lot of merchandise. I utilized the Hyperbolic Tangent Function (click here), ultimately determining customers who purchased at least three times and returned 70% or more of his/her merchandise were likely to return at least 60% of his/her future merchandise, and therefore, be unprofitable customers.

Well, I implement this model. There's a couple hundred thousand customers impacted. They no longer receive catalogs. And these customers become really, really angry. They call our contact center, asking for catalogs.

Soon enough, a contact center manager is joined at my hip. "Are you the reason this customer is not being mailed catalogs anymore?" I'd perform some research. I'd say "yes". Then I'd get yelled at. "This customer purchased five times last year, this is one of our best customers! You are an idiot!" I'd respond that this customer returned 80% of her merchandise, and therefore, is really a one-time a year buyer who costs the company $25 a year in returns processing fees. Then we'd agree to disagree.

Suppressing catalogs to that audience increased profit by $1,000,000 per year.

Well, it's not 1993 anymore. That customer has access to your business 24/7/365. The customer can buy from you regardless of your marketing strategy. So why waste company resources?

  • Do not mail catalogs to high returns customers. These customers can purchase from your website regardless. Why waste money?
  • Do not send email campaigns to high returns customers. These customers can purchase from your website regardless. Why waste money?
  • Do not utilize in-app messaging to high returns customers. These customers can purchase from your mobile presence regardless. Why waste money?
You are under no obligation to enable those who want to rip off your business.

Please, do not commit these two tactical mistakes. Do not continue to promote average/below-average items with high return rates. Do not continue to market to customers who return a lot of merchandise.

July 26, 2015

The Screen Savers

I'll bet almost none of you remember this little-watched show from 1999. Here, take a look at this episode, assuming you have nothing better to do with the next 42 minutes of your time (click here if you do not see the video box).


Pretty compelling stuff, wouldn't you say? How about that CD-R / CD-RW technology they're talking about? Or converting sound to digital? Wow. Or go to the 43 minute mark and take a look at the sophistication of the websites that are being featured.

Why in the name of all that is good am I interrupting your pending omnichannel integration meeting (#seamlesscommerce) to bring this up?

Well, I'm listening to a podcast on Nerdist ... and the guest is Leo Laporte ... the very individual co-hosting The Screen Savers way back in 1999. Click here to see what he's been up to in the past sixteen years, via Wikipedia. And here's what is interesting, folks. He moves forward. At age 58, no less. A clunky show on a cable network that no longer exists became a TV show in Canada that was cancelled ... now he earns millions per year doing a syndicated radio show ... and he earns millions with his podcast network.

The theme of the merchandise (technology) stays the same.

The topics (merchandise) change ... always new.

The channels he uses evolve ... they do not stay the same. He's using radio ... RADIO for crying out loud, and he's using podcasts. He does not adhere to an omnichannel thesis that the customer does everything, so you have to be everywhere the customer is. His customers find him ... and find him on two of the more obscure channels (radio, podcasts) out there.

I bring this up, because many catalogers are in the process of finalizing the Spring 2016 circulation plan. You look at those plans, and you see strategies that are no different than strategies conceived back in 1999 ... the Early Summer catalog on April 18, the Early Summer Remail (#costsavings) on May 2, and the Early Summer 2nd Remail (#newcover) on May 16.

It's time to think differently about our businesses. Is it any wonder the typical cataloger has a customer who averages 62 years old (often much older)? We utilize online marketing to support catalogs, utilizing a tightly integrated omnichannel strategy that pleases the 62 year old customer but repulses the 26 year old shopper. Our merchandise doesn't keep up, further repelling the 26 year old shopper. Now, this may be fine - if you're growing by 10% per year and you're printing 12% pre-tax profit, who cares what you're doing - you're doing everything right!! Unfortunately, the vast majority of catalogers are not growing by 10% and are generating 2% pre-tax profit instead of 12% pre-tax profit.

So look at the evolution of this individual ... and compare/contrast his evolution to the evolution your company has gone through. What can you learn?

P.S. The co-host in the video (Kate Botello) went in a different direction ... landing off Broadway and now co-hosting a paranormal podcast while running a web design company in Traverse City, Michigan. There are many different paths to success, happiness, and satisfaction.

P.P.S. I just re-read this post, and realized that the content is something Sheldon Cooper might be proud of.

July 23, 2015

The Omnichannel Customer Value Query

When a customer purchases for the first time, the customer has a whopping total of one purchase. This means that the customer cannot have purchased from more than one channel.

When a customer purchases for the second time, the customer may elect to use the same channel (an affiliate), or the customer may use a different channel (email). If you are a credible marketer, you probably encouraged the customer to sign up for email marketing messages, so it is very possible that you nudged the customer into a second purchase via a second channel ... even if the customer was going to purchase anyway.

At this time, an Executive may ask an analyst to run a query.
  • "Please measure how many times customers who purchased from multiple channels (affiliates, email) purchased, and compare the metric against customers who only have purchased from one channel."
The result of the query is stunning.
  • Customers who purchased from multiple channels purchased 4.3 times.
  • Customers who purchased from a single channel purchased 1.4 times.
This query is used by many, many folks who are selling products/services related to omnichannel marketing. It is lauded as proof that omnichannel marketing works.

Can you see the flaw in the query?

When a customer purchases for a first time, which segment does the customer reside in? In other words, is it possible for the first-time buyer to place multiple orders via multiple channels, and therefore, to be considered omnichannel?

No.

The query is not measuring "omnichannel" success. The query is essentially measuring loyal buyers vs. first-time buyers. The first-time buyer cannot, by definition, be in the omnichannel segment.

If you really want to see the value of an omnichannel buyer, run this query:
  • Take all customers with five life-to-date purchases, through December 31, 2014, with a recency of three months. Measure how many channels the customers purchased from, life-to-date.
  • Segment the customers ... 1 / 2 / 3 / 4 / 5 life-to-date channels.
  • Measure spend from January 1, 2015 through today.
  • Measure the profit generated by customers who bought from 1 / 2 / 3 / 4 / 5 life-to-date channels, from January 1, 2015 through today.
In this query, customers are largely equalized (5 purchases, at least one purchase 0-3 months ago ... run regression models that factor in more variables if you so desire). The impact of channel activity is mostly isolated.

What do you learn, when you run a query like this?
  • 1 Channel = $80 future value.
  • 2 Channels = $83 future value.
  • 3 Channels = $85 future value.
  • 4 Channels = $87 future value.
  • 5 Channels = $88 future value.
Now, you see that the customer who purchased from 5 channels is worth 10% more than the customer who purchased from 1 channel. That's good, but that's now what you are told the impact of multiple channels is, now is it?

Ok, now that we are armed with this data, let's run a p&l on spend over the next six months.
  • 1 Channel = $20 future profit.
  • 2 Channels = $21 future profit.
  • 3 Channels = $20 future profit.
  • 4 Channels = $19 future profit.
  • 5 Channels = $18 future profit.
Oh.

Here's what happens. Customers who purchase from multiple channels also tend to be more avid users of discounts/promotions, and tend to use channels that charge tolls (Google, Facebook, Affiliates). As a result, the marketer pays more money for multiple-channel purchases, and harvests less profit due to the discounts/promotions.

Those who are not discount/promo centric frequently see modest profit increases, so long as there isn't some sort of expensive loyalty marketing effort to force customers across channels while costing the business profit ... I see this happen all-too-often.

The two tables illustrated here explain why the best omnichannel marketers seldom make healthy sales/profit progress. We honestly are not creating omnichannel buyers ... rather, by accident, loyal buyers touch all channels eventually. The omnichannel community claims credit for the hard work of the merchandising team. The Apple store is pointless without iPhones, iPads, Macs, and the Genius Bar.

Make sense?

The most valuable customer is a customer who craves your merchandise ... the customer who cannot wait for your next email message ... the customer who must visit your website daily. This customer, by sheer accident via probability theory, will touch all of your channels.

July 22, 2015

A Contrast Between Catalog Marketers and E-Commerce Marketers

Two recent conversations illustrate the significant difference between how catalogers operate, and how e-commerce companies operate. I will outline each comment, and then not offer my thoughts about each comment. Instead, I am asking you to think - think about the downstream impact of each comment.

Catalog Marketer Comment: "We're in the process of merchandising our Spring 2016 catalogs, and we're plotting out page counts for Fall 2016 catalogs. It's important that we know what merchandise will be in the catalogs, so that we can accurately forecast segment-level demand. Then, we can get busy planning the 2016 integration schedule between the catalog and the website. We really think that our Spring 2016 assortment will be a winner with customers."

E-Commerce Marketer Comment: "Our home page and landing page algorithm identified the items that exhibited improved performance. The algorithm pushed those items to our most visited pages, growing sales by 10% on Monday."

July 21, 2015

Revenue Streams / Tolls

When you watch something on ESPN, you are part of a large toll-based ecosystem. Click here to see how much you pay, each month, even if you never ever watch ESPN. Basically, you are spending somewhere between $5.75 per month and $7.00 per month, depending upon how many ESPN channels are available to you.

Then think about what ESPN does:
  • Collect monthly money from individuals who never, ever watch the channel (eight billion dollars per year ... how much money do you collect from folks who never buy your merchandise?)
  • Collect advertising revenue from brands looking to connect with those who love sports.
  • Offer DVR-proof programming, requiring the user to watch the commercials, thereby driving up the value of the commercial, thereby allowing ESPN to collect even more revenue.
We're in an environment where we either collect tolls, or we pay tolls. We don't want to be in the latter category.

So you, the cataloger, let's look at your situation. You are being constrained by tolls, aren't you? However, you have an advertising venue that could allow you to collect tolls, right? In other words, your catalog could evolve, couldn't it? Instead of sending your wares to 1,500,000 customers forty times per year, you could use half of those catalogs to collect advertising tolls from other brands, right? Wouldn't that lower your cost structure? Wouldn't that allow you to circulate deeper? Wouldn't that allow you to grow your own business?

I know, I know, you're not going to do this. You'd never let Pinterest advertise in your catalogs (and they don't want to advertise in your catalogs, but you get the point) ... offering your customers an opportunity to pin your creative imagery on their platform. That couldn't possibly benefit your business ... toll-based revenue.

Or could it?

July 20, 2015

The Death Of An Item

Every item has a birth, and a death. Maybe that's the way everything is on Planet Earth.

Now, the life of an item is messy. Undeserving items receive disproportionate attention, and consequently, perform above their pay grade. Highly deserving items are ignored, literally dying from starvation. And as anybody knows, when a Management change happens, items die and items are born.

The key, of course, is to identify "peak life". For so many companies I work with, the curve looks something like what is depicted in the bar chart above. Often, items show significant promise, from the get-go. That promise is capitalized on ... the cataloger gives the item catalog space ... the online marketer features the item on landing pages and on the home page and in email campaigns.

The secret is to measure what happens after sales begin to decline. This relationship is different for each business. I have clients that are selling items from the 1990s - and the sales curve has yet to decline. I also have clients where the life cycle is measured in weeks/months instead of years.

I like to look at items that are in the top 5% for demand volume and/or item volume. These items typically make up 50% of your annual sales volume. Only a handful of items ... a ton of responsibility from these items! Anyway, measure where your items are on the life cycle curve above. If you notice that, year-over-year, your best selling items are increasingly aging, well, you know you have a real problem that you have to address.

July 19, 2015

Clouds / Thunderstorms

It's a Monday, and you're not doing anything productive today anyway, so take a few minutes and watch this video ... watch how all the clouds evolve / adapt / change over time.



Your business is like a cloud (no, it isn't "in the cloud" like vendors want it to be). Your business is a dynamic, changing ecosystem ... while at the same time, it is part of a much larger ecosystem ... the upper level low in the Pacific Northwest fuels the low level winds that interact with the jet stream and create severe weather across the Plains and Midwest.

Do you treat your business like a dynamic, changing ecosystem that is part of a much larger ecosystem? Well, yes and no.

In most cases, the answer is no. We treat our businesses like a snapshot. We execute an email campaign. Or we mail a catalog. We change the home page and landing pages and the retail floorset. All are snapshot executions of our business ... a picture at a point in time. Is the picture pretty? Yes? Then we succeeded. Never mind that the pretty picture becomes a tornado at a later point in time ... the picture is pretty.

Sometimes, the answer is "yes". When we change our bidding strategy on various keywords, we're treating our business like an ecosystem. When we offer 30% off plus free shipping in response to a competitor offering 25% off plus free shipping, we are treating our business like an ecosystem. Whether we positively or negatively impact our ecosystem, well, that's another story.

But the problem with business today is that we treat too many aspects of our business like a snapshot, and not like the videos shared with you in this blog post.

When we don't generate enough new, winning products, we stop fueling the thunderstorms in the video above.

When we don't generate enough new customers, we stop fueling the thunderstorms in the video above.

When we don't run the best selling items in the front of the catalog because we want to "make a statement", we stop fueling the thunderstorms in the video above.

When we put 25% off plus free shipping in an email campaign to generate more opens and clicks, we stop fueling the thunderstorms in the video above.

Do you understand the message?

July 16, 2015

Amazon / Nordstrom / You

I cannot tell you how many times I've heard many of you utter this sentence:

  • "July is in the dead of summer. We cannot sell anything in July."
On Wednesday, Amazon increased sales by 266% (i.e. 3.66x) with a one-day promotion.

On Friday, Nordstrom begins their Anniversary Sale. They'll sell as much as they sell at Christmas.

It has become obvious that we aren't even trying to sell anything in July.

Instead of focusing on Omnichannel, why not focus on giving the customer a compelling reason to buy something?

In other words, what is lacking is not a seamless customer shopping experience across channels ... that doesn't work. What is lacking is marketing creativity. We need marketers who love merchandise so much that marketers cannot help but come up with creative ways to sell the merchandise.

We're the problem.

Or Mess With Creative - And Live With The Consequences - Good Consequences!!

Yesterday, I told you a story about my time at Eddie Bauer ... we made a major creative change, the change sunk sales by 10% or 15%, +/-, and that didn't go over well with the folks who have their thumb on the pulse of the business.

In that example, after a period of time, those who made the creative changes found themselves exploring new opportunities.

But what if folks had the patience to wait longer?

A few years ago, a person working at a major retailer told me a story about a change in creative. The website was literally re-built, from scratch ... new platform, new creative presentation, new imagery, new user-generated content. New everything.

In month one, conversion rates were -15%.

In month two, conversion rates were down -10%.

In month three, conversion rates were down -5%.

In month four, business reverted back to normal.

Imagine if you A/B tested this thing for a month ... came up with a statistically significant outcome (new = worse #measure #datadriven #gutinstinctisforlosers), and told the company to not make the change?

In 1998, I would have been a punitive moron ... I would have not appreciated changes that did not immediately produce positive results. In 2015, I hope I'd be more nuanced. I'd probably use my comp segment framework to demonstrate that, at this time, the change is not working ... and then, I'd give Management the two data points described in the past two blog posts as examples of what could happen.

Truth is, we don't know, at month one, whether the -15% will become 0 or will stay at -15%. Creative always requires a certain amount of faith, and a certain amount of prudence is needed before pulling the plug.

July 15, 2015

Don't Mess With Creative

Sometimes, you're not the victim of merchandise productivity declines. Instead, the real problem is changes in creative strategy.

Back in the day, at Lands' End, we knew that creative could cause a +/- 30% change the productivity of an item. We knew that because we tested the strategy.

Most companies don't test creative. I'll take you back to my time at Eddie Bauer. We built a brand marketing department, from scratch. The brand marketing folks absorbed the creative team. Together, it was determined that our catalogs needed to "get younger". No, not from a merchandising standpoint, but from a creative standpoint. Out went the grizzled 40 year old male in jeans fly fishing ... in came shirtless twenty-five year old men carrying a canoe overhead.

Within hours of the change, sales dropped, by between 10% and 15%. And that's where they stayed. Sometimes we tumbled to -20%, other times -5%, but overall, it wasn't pretty.

Our catalog marketing team was responsible for prospect catalogs. We didn't change the creative of prospect catalogs ... the rules for those things were "best creative / best merchandise". Those catalogs stayed on plan.

You'd think we would have been rewarded for not sending the entire business down the toilet, but no. The creative folks were constantly badgering me ... "you are the problem, you acquire old customers and then old customers don't respond to our creative changes." I'd remind the creative team that 97% of our twelve-month buyer file came on prior to the creative changes ... so I was hardly the problem. Didn't matter.

I am always amazed by how few employees are actually motivated by sales, and by profit, especially given the fact that the small number of employees who are motivated by sales and profit seem to climb the corporate ladder much, much faster than everybody else. During that experience, back in the late 1990s, a large team of marketers / creatives cared about creative faith more than sales proof.

Maybe it's always been that way.

But as a marketer, you have the ability to put a stop to creative nonsense. Use the comp segment framework to measure the problem. Put a number to the problem. At Eddie Bauer, we could show that the creative changes were costing us $60,000,000 of demand and $15,000,000 profit. It's funny ... the Finance folks become alarmed when $15,000,000 of profit disappear in an effort to make creative imagery look appealing to younger customers.

Marketers have a disproportionate amount of impact on the business. When a marketer helps a company avoid a $15,000,000 cliff, people take notice.

Don't focus on omnichannel theory that helps generate page views and revenue for folks who do not work at your company.

Focus on helping your co-workers achieve their potential.

Amazon Prime Day

Customers complain ("the deals aren't that great" ... "this is a fake holiday").

Trade journalists complain, or they praise ... either way, it doesn't matter, they're not commerce experts, they're experts at generating page views, and they'll generate page views today.

None of that stuff matters ... it doesn't matter what 1,000 loud social media-centric customers think, and it doesn't matter what 100 trade journalists think.

What matters is that, in an alleged era of one-to-one personalized, relevant, engaging communications, the company that personalizes every single home page is running an old-school, Nordstrom Anniversary Sale style promotion. Amazon is creating a reason for a customer to buy something at a time of year nobody wants to buy anything. It doesn't matter if the promotion works or not.

What matters is this. What are we doing to create demand? It cannot be 20% off plus free shipping - everybody does that. We all need to do something to create demand. This is what Amazon chose to do. What are the rest of us choosing to do?

July 14, 2015

Waiting For A Girl Like You

You probably know all about the epic battle between "Waiting For A Girl Like You" by Foreigner, and "Physical" by Olivia Newton-John. For nine weeks, we'd sit by the radio (yes, you did this in the early 80s) ... listening to WIXX as Casey Kasem counted them down, from number forty to number one ... we waited, anxiously, as the songs were counted down ... you'd learn that "I Can't Go For That" by Hall & Oates was climbing the charts quickly.

Then, you'd get to number two.
  • "Waiting For A Girl Like You" (with synthesizer courtesy of Thomas Dolby).
OMG! It's number two again. Five weeks in a row. Six weeks in a row. 

You'd wait for number one ... and sure enough, it was ...
  • "Physical"!
Again! 

Seven weeks in a row.

Eight weeks in a row.

NINE WEEKS IN A ROW ... same thing ... same order.

Then Hall & Oates leap-frogged past Foreigner, Physical dropped like a rock, and a week later, it was all over, forgotten. Soon, we'd learn that people were the same, wherever you'd go ("Ebony & Ivory").

Why bring this up?

Foreigner was a pretty big deal back in the late 1970s. "Cold as Ice", "Hot Blooded", "Blue Morning, Blue Day", all rockin' tunes for their time. But as you know, it was a "best practice" for rock bands to perform a ballad. Or two. Or seven. You've gotta get the lighters lit at Alpine Valley, attendees swaying due to the soothing tones of a ballad and/or the sixteen cans of Kingsbury beer ingested prior to the start of the concert. By doing the ballad, you appealed to a larger audience. By appealing to a larger audience, you earned $$.

And they all did ballads, didn't they? Styx, Journey, Loverboy, Foreigner, you name it, they all followed the best practice of ballads ... followed it right into a black hole. Ballads changed the perception of a band. You don't think of Phil Collins singing "Illegal Alien" the same way after you've heard him sing "You'll Be In My Heart". After a half-dozen soft favorites, the audience tired of Phil Collins ... he was sappy ... rich ... but known for sappy, empty love songs.

Has this happened to the company you work for?

Did you stand for something once? And then, in a battle to top the charts, you changed? You became something else, you employed best practices, you became omnichannel and created a purchase funnel that looks something like this?


I always go back to my time at Eddie Bauer. The male-centric outdoor brand went the route of the ballad ... selling womens apparel ... until that is what sold the best. I was in countless meetings, with well-intentioned leaders trying to figure out how to "recapture our heritage". Well, you cannot recapture your heritage as a masculine outdoor brand when you sell womens dresses, now can you?

It happened in music, all the time ... sing a ballad, climb the charts, make $$$. But you evolve, and that evolution changes who you are, and pretty soon, without realizing it, you are in a different place.

In other words, from a Merchandise Forensics standpoint, you can chase what wins in the industry (ballads) ... and before you know it, those wins overshadow the winners that made you famous ... and now you're not what you were.

Take a look at what you sold 15 years ago.

Compare that with what you sell now.

Did you go the path of the ballad?

Or is your merchandise assortment still rockin' and rolling?

July 13, 2015

Sure, Let The Toll Collectors Determine The Creative Strategy For Your Ads!


Imagine if you drove past a toll booth along I-294 outside of Chicago ... and as you drove by, the messaging screen told you what kind of car you had to drive to optimize your highway experience?

  • "Hey 1974 Chevy Nova driver, your car is bad for the environment ... buy a used Corolla and enjoy twice the gas mileage."
That's the same thing, isn't it? In the article, somebody else determines the creative that gets you the most sales or efficiency or engagement or whatever pseudo-metric you want to measure.

I'm not saying having a toll collector execute your creative is good/bad.

I'm simply asking you to think.

How do you feel about a 2020 marketing landscape where toll collectors increasingly own your creative/branding strategy? They take your money and they optimize what your creative looks like. 

What does your job look like, in a world where you don't even own your message? 

How do you make sure you acquire 100 of the customers you want to acquire instead of acquiring 115 customers that the toll collector wants you to acquire?

How do you stop toll collectors from optimizing for short-term performance results that benefit their bottom line but hurt your long-term performance?

You think about these things ... right? Right? Or do you simply trust third parties, and in the process, turn your career trajectory into one aligned with a "vendor communication specialist" role?

What is your career plan - in other words, how do you evolve your career path to deal with a world increasingly dominated by toll collectors who own other aspects of your strategy?

Discuss.

July 12, 2015

FIFA Women's World Cup: Merchandise Forensics At Work

Last week, the United States defeated Japan by a score of 5-2, earning the title in the FIFA Women's World Cup up in Vancouver.

What does this have to do with Merchandise Productivity?

It turns out that this was a very good team (i.e. great merchandise). But the television ratings (i.e. sales) weren't very good at first, were they? They weren't bad. A couple million people watched the first game, a win vs. Australia. Then more people watched a 0-0 draw vs. Sweden. The audiences grew for wins vs. Nigeria, and Columbia, and China.

By the time the semifinal was played (against Germany), more than ten million people were watching.

And last Sunday, an average audience of more than 26,000,000 folks (between Fox and Telemundo) watched the United States win the title ... with more than 40,000,000 people watching at least a moment or two of the game.

Everything works when customers love the merchandise. Especially word of mouth.

Great companies seldom possess 30% ad-to-sales ratios. Great companies sell great merchandise. Customers, who love the merchandise, spread the word, lowering the ad-to-sales ratio. Heck, when I worked at Nordstrom, I could not believe that our ad-to-sales ratio (2007) was +/- 2.5% of net sales. Go look at Macy's, the established omnichannel leader, and see what you learn there. You don't have to advertise as much when customers love merchandise/service.

Marketers greatly influence merchandise productivity, by the way. Sure, the marketer can offer 30% off plus free shipping, but everybody does that already, so the marketer isn't accomplishing anything special. But when the marketer takes a new item that is performing well, and features that item across channels, causing that item to become a winning item, well, then the marketer has accomplished something. This is a "slow build" approach ... mirroring the slow build in TV ratings for the US Womens National Team. We just need patience. We also need the right reward structure.

Focus on marketing merchandise. Focus less on marketing channels.

July 09, 2015

So What Is The Right Definition?

Way back in 2001/2002, I was given this image by a print rep ... the image offered "proof" that multichannel marketing was the preferred strategy. I recall the print rep advocating that companies that did not merge paper & physical stores and the internet were essentially dead.

How did the "bonanza" work for you?

About five years ago, a major researcher proclaimed that multichannel was dead (thanks for demanding that everybody adopt a multichannel business for a decade prior), and was about to be replaced by something called "omnichannel".

Since then, the same arguments have been used - just rebranded. Everytime an e-commerce brand announces that a store is opening, it's listed as "proof" that omnichannel works (as opposed to the reality that maybe, just maybe, the e-commerce business is running out of digital growth opportunities). In other words, to some, omnichannel is the reinvention of the venn diagram above.

To others, omnichannel means "seamless commerce". This is a very reasonable interpretation. I can support making it easy for a customer to shop where she wants, how she wants. The challenge with this interpretation is that it is expensive to align all channels along the vision of this sect of the omnichannel community. Not only is it expensive, but this sect of the community often acknowledges that there won't be a sales gain, once the vision has been fulfilled. The problem, then, is that the in-brand employee must spend money but should not expect a return on investment. That's a good way for the in-brand employee to get fired.

There's another omnichannel community - this one argues that the customer touches a dozen digital channels before buying merchandise. In the customer acquisition phase, this is undoubtedly true. I've analyzed the data - repeatedly. The customer is visiting your site five times over seven days, is using Google & Facebook & Pinterest to comparison shop. In this sect, the omnichannel advocate argues that you must spend money on digital advertising, in an effort to capture the sale. In other words, you must spend digital dollars to prevent the customer from buying from somebody else. This is a tough argument as well, because when everybody spends digital dollars, sales grow at the rate of inflation, but ad dollars increase, meaning that only the digital omnichannel vendor community benefits.

Finally, there's a fourth omnichannel community - the "data" community. This sect argues that you use data to be "smarter". The data must be collected across silos, and must be collected in an aggregated form across the internet - meaning that those who aggregate data will get paid. This faction of the omnichannel community piggybacks on the "visiting a dozen digital channels before purchasing" faction, offering to reduce tolls within that community by increasing tolls within the data community.

Those are four of the leading interpretations of omnichannel. None is right, none is wrong. The only thing that is certain is that each sect wants your money. The only problem is that, outside of a few cases, you won't experience an increase in return on investment.

This is why Merchandise Productivity is so important. When you grow merchandise productivity by 10% (easily achievable), every one of the omnichannel factions listed above benefit. The vendor community should demand that you increase merchandise productivity - it's the easiest way for vendors to grow their business.

So what is omnichannel, anyway? Your thoughts?

July 08, 2015

The Paper Industry

Here's a ditty, forwarded to me by folks in the paper industry ... a campaign to encourage the public to embrace paper and packaging ... click here for the press release.

Twenty million dollars will be spent, which, quite honestly, is about equal to zero in the world of advertising. Tactics include:
  • Television Commercials.
  • Print Ads.
  • Banner Ads.
  • Videos.
  • Website Info Hub.
  • Facebook.
  • Twitter.
  • LinkedIn.
  • YouTube.
A quote:
  • "The campaign highlights relatable moments that connect consumers to paper and packaging products in meaningful, emotionally relevant ways," says Mary Anne Hansan, P+PB's executive director.
Ok, let's think about the three mega-trends that we are facing.

  • Merchandise Productivity.
  • How Will I Acquire A New Customer In 2020?
  • How Will I Avoid Paying Tolls?
Now let's evaluate the trends within the context of your beloved paper industry.
  • Merchandise Productivity: On the decline. For every JCP who is celebrated for mailing just one (1) catalog, there are tens of millions of people not using paper - instead using Instagram and Pinterest. This drives down merchandise productivity. When you read the press release, you learn that the paper folks do not believe they have a merchandise problem - you learn that the paper folks believe they have an awareness problem. They are attempting to increase merchandise productivity via advertising. The core issue, of course, is the merchandise.
  • New Customers: Look at the list above. This initiative demonstrates that leadership wants new customers - and will use advertising as the medium to find new customers. It doesn't matter if this is right/wrong, this is the worldview they have, and we all have a worldview, don't we?
  • Tolls: Again, look at the list above. The initiative is all about tolls, isn't it? They're going to pay digital channel toll managers a series of tolls in an effort to convince digital users to use paper. Clearly, digital toll collectors are going to profit from the endeavor. Digital folks love it when offline folks pay digital tolls to convince digital users to use offline products.
So, the initiative does not address merchandise productivity. The initiative suggests that the way to find new customers is via advertising. The initiative suggests that it is a good thing to pay tolls in an effort to convince digital folks to use paper.

Do you see how we can view our efforts within the context of the three mega-trends?

Can you see how this initiative, which may work and may deliver sufficient ROI, is largely positioned as opposite of the approach we've been talking about for two months?

July 07, 2015

Free Shipping

Catalogers have a serious challenge (well, there are many, but let's focus on one of them today).

Let's consider an online business ... one that has a $100 average order value ... one that has a 15% ad-to-sales ratio ... one that gives away free shipping at an average of $10 per order. In total, 25% of sales is consumed by advertising costs and free shipping expense.

Let's consider a catalog business ... one that has a $100 average order value ... one that has a 25% ad-to-sales ratio ... one that charges (on average) $10 for shipping costs ... thereby offsetting the $10 fee to ship merchandise. In total, 25% of sales is consumed by advertising costs and the net of shipping income/expense.

Which business has an advantage?

Free Shipping is a key driver in two of our mega-trends.
  • How will we find new customers in 2020?
  • How will we avoid paying tolls?
Make no mistake - free shipping (as of today) is a toll we place upon ourselves. Catalogers operate at an enormous disadvantage - unable to offer Free Shipping on a consistent basis because of the onerous costs of catalog marketing.

The smartest of catalogers will eliminate a large portion of catalog marketing expense, so that the smart cataloger can offer free shipping, thereby becoming more competitive (and growing sales) in the process. Something needs to be given up, in order to gain a competitive advantage. What will need to be given up, of course, is break-even (or worse) catalog marketing activities that do not pay dividends.

July 06, 2015

Sometimes These Meetings Get Pretty Interesting

I'm at lunch with a digital executive - a professional on the vendor side of the equation. This individual is kind and charming and intelligent. He simply faces the kinds of pressures most of us face. Yup - this person is under pressure to deliver growth.

The individual is speaking about a major client ... a huge business. This individual wants this huge business to utilize even more digital advertising, and for good reason ... it's time to get paid.

This individual doesn't know something I know.
  • The client is also my client.
  • I have analyzed every penny this client spends with the individual sitting across the table from me.
  • I know the ROI of the digital advertising sold by the individual sitting across from me.
  • I cannot tell the individual that we share the same client.
The individual theorizes (quite accurately) that the digital advertising his agency sells touches 3/4th of the customers that shop digitally with the client in question. Because his agency is ultimately touching 3/4th of the customers/orders, he wants to impose a much larger toll on the large client. He argues that he is responsible for generating 3/4th of the orders. Never mind that sales at the company are flat since the dive into retargeting ... the vendor wants to impose a serious toll.

The individual asks me to call any of a large number of Executives at this company. The individual asks me to convince the Executive Team that, just because this individual can get an ad in front of nearly every customer, the individual should get credit for just about every order placed by customers.

For the cost of a caesar salad, this individual wants me to convince Executives that interrupting customers with ads causes orders to happen, and because it causes orders to happen, the individual deserves to receive increased toll payments.

There would be no return-on-caesar-salad-investment (ROCSI) on this day.

But most important, folks, is the world view of some in the digital community. This worldview is no different than somebody arguing that without a cash register, money could not be collected - and therefore, the cash register deserves credit for all orders.

You, yes YOU, the smart digital merchant, you create demand. The customer never knew she needed to purchase that jean jacket. You made that happen. The fact that somebody can follow the customer across the internet reminding her that she wants this jacket is largely irrelevant. You, yes YOU, created the demand. You deserve to keep the profit.

Your attribution work must be really, really special, folks. You must know your organic percentage? Why? Because the digital toll collectors are coming after it. A good retargeting program might be worth 1% to 2% of your sales. Don't let them come after 75% of your sales. Know your stuff.

July 05, 2015

The Story Ends Differently

Have you had a chance to read this little ditty (click here)? It isn't hard to find people who disagree with his thesis. But it is hard to observe otherwise.

Click here for additional commentary ... I particularly enjoyed one of the hand-picked quotes.
  • “The peculiar development, full of dramatic irony, is that television, with its more circumscribed audiences making much more active selection and choice, becomes upscale media, and digital, with its mass reach and reflexive actions, becomes the downscale side.”
Oh my goodness. Does that not outline what digital has become in our marketing world?

"Align channels to create a seamless customer experience" ... have you ever noticed that so much of this seamless customer experience includes making sure that the customer gets twenty percent off plus free shipping ... and by making the digital experience a constant search for the lowest possible price, digital destroys the very environment it was promoted to build?

The story, so often, ends different from what we were originally sold. What I've learned, from analyzing +/- thirty-five brands this year, is this:
  • Merchandise Productivity is king. Merchandise productivity has largely been ignored for at least a decade, and we're now paying the price for our lack of attention.
  • Customer Acquisition is getting harder and harder. A small number of businesses possess a disproportionate stranglehold on customers.
  • In the image above, Tolls are being collected all throughout the customer journey. Most of my clients are dealing with profit-and-loss statements peppered with tolls. The tolls allow the businesses to grow (net sales), but do not allow the business to earn a high-quality level of profit. As a consequence, the minute a -5% merchandise productivity hit happens, the business loses money ... lots of money. Quality businesses absorb the -5% merchandise productivity hit without stress.
Undoubtedly, my story, the one I am telling you, will end differently as well.

But I will say this ... focus on merchandise productivity. Merchandise productivity covers up a lot of marketing, creative, inventory, and finance sins.