September 30, 2015

"The Eagles", Featuring "Catalog" Craig Paperman

Yup, this is fiction, albeit dripping with truth. If this isn't your cup of tea, move along, we'll have more for you tomorrow.


A Discussion With "Catalog" Craig Paperman



Kevin: You don't look very happy today?

Craig: I'm not happy.

Kevin: What could possibly be frustrating you on a gorgeous Fall morning?

Craig: It doesn't work anymore.

Kevin: What doesn't work anymore?

Craig: I did everything I was supposed to do.

Kevin: Specifics, please.

Craig: They told me if I integrated my catalog and my website that customers would love me.

Kevin: And?

Craig: Sales didn't grow.

Kevin: Oh.

Craig: I thought that omnichannel customers spent nine times more than single channel customers?

Kevin: That's what they tell us.

Craig: My team worked hard to create a seamless, frictionless omnichannel customer experience. Same merchandise across channels, same pricing, same promotions. It's beautiful!

Kevin: Great!

Craig: Our share of omnichannel shoppers increased from 3% to 22%.

Kevin: If omnichannel customers are worth nine times a much, then simple algebra dictates that your business should have more than doubled.

Craig: But nothing happened. If anything, after accounting for inflation, my business is shrinking.

Kevin: #OhBoy.

Craig: How is that possible?

Kevin: How is what possible?

Craig: I did what the experts told me to do. And it didn't work.

Kevin: Maybe the experts were wrong? Or maybe they weren't experts to begin with. Maybe they were just selling you a message that you wanted to hear, a message that they generated profit from.

Craig: When I ask industry experts, they tell me it is my fault.

Kevin: Of course they do.

Craig: I sat down with my co-op sales rep. She told me to focus on their new "coherence" model. She said that clients were experiencing breakthrough results. She told me that JCP used it in their new catalog. She said it was "proof" that cataloging is the linchpin of the omnichannel experience.

Kevin: And?

Craig: Not so much.

Kevin: Did sales increase?

Craig: Response rates increased from 0.55% to 0.58%.

Kevin: Wow!

Craig: But the average age of the customer we acquired was still 62 years old.

Kevin: Oh.

Craig: Why are my co-op customers always 62 years old? And getting older?

Kevin: Because you are using catalogs as a linchpin in your omnichannel strategy.

Craig: Oh come on. Customers love paper.

Kevin: 62 year old customers love paper.

Craig: That's not true. Five percent of our customers are under the age of forty-five.

Kevin: Half of the population in the United States is under the age of forty-five.

Craig: That can't be true.

Kevin: Would the Census Bureau lie to us?

Craig: Would the Government lie to us?

Kevin: Think about it this way. Who is your favorite band?

Craig: The Eagles.

Kevin: Let's say you hosted a party. You played The Eagles on that speaker shaped like a faux rock in your back yard. You played The Eagles on your home theater. You played The Eagles on that bluetooth speaker in your office. You integrated the entire listening experience across the house.

Craig: Giving my listeners a "Peaceful, Easy Feeling".

Kevin: Right. You're giving your party attendees an integrated omnichannel listening experience. You are even using a bluetooth speaker - employing digital technology along with your old-school home theater. Nicely done. Who would be most likely to listen to the music?

Craig: My friends would love it.

Kevin: Precisely. How about your kids, and their friends?

Craig: They'd probably put their earbuds in and listen to something on Spotify.

Kevin: Or they'd leave the party.

Craig: Maybe.

Kevin: They wouldn't enjoy listening to The Eagles, would they?

Craig: I could sprinkle in some Boz Scaggs. Make a playlist. Bread. Jefferson Airplane. Boston. I'd "get jiggy" with it.

Kevin: Do you know who Jason Derulo is?

Craig: Jason Alexander?

Kevin: Never mind.

Craig: What does this have to do with my business?

Kevin: This has EVERYTHING to do with your business!

Craig: I don't get it.

Kevin: You provided a wonderful omnichannel listening experience at your party. You integrated music channels across your home and yard. And then, after doing all of the hard work to integrate everything and make everything the same, you drove away every guest under the age of 50 because you played The Eagles at your party.

Craig: But people love The Eagles. They're one of the greatest bands of all time.

Kevin: Your target audience loves The Eagles.

Craig: Alright.

Kevin: Don't you eventually need new friends?

Craig: Now that you say it, I am sick of that gossipy Agnes Myers. She's always peeking over my fence, looking at my faux rock speaker.

Kevin: If you need new friends, you can play The Eagles, and maybe you'll find new friends who share your current musical interests. Or you could play Jason Derulo. But if you play Jason Derulo, you're going to have different people, younger people, at your party. Their needs are different. Are you willing to take care of their needs?

Craig: I hear they love Mountain Dew.

Kevin: Red Bull.

Craig: Whatever.

Kevin: You're proving my point.

Craig: As long as younger people love nachos, I could probably adjust my playlist.

Kevin: An omnichannel strategy focuses on your core customers. Those are the people who share your interests. You do everything for them, and in the process, you shut out everybody else. Do this year after year, and your customer base ages, along with you. Pretty soon, your merchandise only appeals to your core customer.

Craig: Maybe I could burn a CD that has The Eagles and Madonna and Carrie Underwood on it?

Kevin: Again, that's the problem with an integrated, channel-based omnichannel strategy. When we stretch, we alienate our core audience. We offer Madonna. The customer wants "The Eagles". How can we ever get to Jason Derulo if we can't build the bridge from The Eagles to Peter Cetera to Cher to Alanis Morissette to Sheryl Crow to Pink to Katy Perry to Fall Out Boy to Jason Derulo?

Craig: Isn't it ironic that you didn't mention Skid Row? They were awesome!

Kevin: #OhBoy.

Craig: So how do I get out of this mess? I'm left with a 62 year old customer, and no matter how hard I work with the co-ops, I keep getting 62 year old customers?

Kevin: You have to offer a merchandise assortment that appeals to a younger customer, and then you have to engage with those customers in the channels they prefer. And I cannot believe I just used the marketing buzzword "engage" in an actual conversation.

Craig: But if I do that, I'll alienate my 62 year old customer, right?

Kevin: Yes. It's exactly like playing The Eagles at your party.

Craig: So then I'm stuck. What a waste of time. Thanks for nothing.

Kevin: Why can't you host two parties? One for those who love The Eagles, and one for a different audience?


Craig: But that goes against the omnichannel playbook. I'm supposed to integrate everything.

Kevin: Build two brands. Your current brand generates profit from your current customer audience. Build a second brand that appeals to a different audience.

Craig: Can I create catalogs for that audience?

Kevin: We're right back to our parable about The Eagles.

Craig: But I love mailing catalogs. My printer says that catalogs are making a comeback.

Kevin: And Don Henley has a new album coming out. He's making a comeback.

Craig: See what I mean? Everything old is new again! I'll just keep doing what I'm doing. Everything will be fine. Now, if you will excuse me, I need to plan for my Summer 2016 merchandise assortment.

Kevin: Mobile brands are dynamically merchandising offerings to unique customers in real time, and you're busy planning your Summer 2016 merchandise assortment?

Craig: My paper rep needs a commitment as soon as possible. She says she can get me a 5% volume discount if I plan my circ levels through the end of 2016 and then promise to not alter the circ plans in 2016. It makes good business sense to plan ahead, don't you think?

Kevin: #OhBoy.

September 29, 2015

Deadline = Today!!!! Hustle!!!!

Today is the deadline to get in on the very first run of the MineThatData Elite program.

Get in. Now!!!! Be a pioneer. Blaze the Oregon Trail, don't wait until I-84 is built and then jump in and take advantage of the hard work of others.

If you want to understand what is happening to merchandise productivity ... and quite honestly, I have no idea why you wouldn't want to understand what is happening to merchandise productivity ... send me an email and get busy (kevinh@minethatdata.com).

If you want to understand the blended average (average of straight average across participants and weighted sales average across participants) of merchandise productivity across clients, this is the only place you're going to find out. The only one. Your co-op, who has all the data and could tell you what is happening in six seconds won't budge. This is the place where you find out what is happening in the competitive landscape.

The program has three runs per year.
  • June - July - August - September run ... participation due by 10/1, data/payment due by 10/15, analysis delivered by 10/31.
  • October - November - December - January run ... participation due by 2/1, data/payment due by 2/15, analysis delivered by 2/28.
  • February - March - April - May run ... participation due by 6/1, data/payment due by 6/15, analysis delivered by 6/30.
At just $2,000 per run, the work is completed, virtually for free! Why wouldn't you participate? Seriously - what would stop you?

September 28, 2015

What Do Marketers Control?

Not much.

Merchandise? No.

Creative? No.

Inventory? No.

Website and Mobile Ops? No.

Home and Landing Page Content? No.

Finance? No.

Email Marketing? Usually, no. Usually, the merchandising team determines what goes in an email campaign, the creative team determines what it look like, and the marketer is left with almost nothing to do.

Discounts and Promotions? Yup.

This creates a perverse set of negative incentives.

The marketer controls discounts and promotions, so the marketer over-focuses on stuff that ultimately hurts brands and hurts profit and loss statements. But by measuring the promotional window only, the marketer believes she is doing good. If she measured sales loss during non-promotional windows, #ohboy.

It only takes about 15 minutes a week to think about promotions. So now you have 49.75 hours left in the work week. This is where the vendors come in. The marketer spends a lot of time considering vendor partners. Working with vendor partners. Bossing around vendor partners. Not understanding if vendor partners are truly adding value or not.

Strategic meetings become nonsense meetings - you see these meetings all the time - in the catalog marketing world, the Marketing VP and a Marketing Director and three Marketing Managers and Six Marketing Analysts sit in a room with a Co-Op Sales Exec and Co-Op Sales Manager talking about statistical models that nobody understands except the 27 year old who builds the model without client input. How is this strategic? The only person who has any control is the 27 year old building the model in a bunker outside of Denver.

Or what about when the same marketing team meets four hours later with the Paid Search Sales Exec and the Paid Search Sales Manager, talking at length about bidding algorithms that nobody controls except for the 31 year old programmer working in a bunker in Virginia? Again, the person who truly controls things is not in the meeting, right?

Or what about when the same marketing team meets two days later with the Email Vendor Sales Exec and the Email Vendor Sales Manager, talking at length about Relevancy and Personalization and Engagement and everything that has nothing to do with profitability. Again, the only person who truly controls things is not in the meeting, right? The only person who truly controls things the 29 year old writing code to make sure that delivery is good, hiding in a bunker in Boston.

Or what about when the same marketing team meets two weeks later with the Attribution Vendor Sales Exec, talking about all the ways that the algorithm could be tweaked to give the results that the marketing team wants to see? First of all, that's not honest, and second of all, that's not strategic. The only person who truly controls things is the 30 year old writing code in NYC.

In other words, the marketer controls Vendor Relations, Discounts, and Promotions.

Is it any wonder, then, that so many marketers find life so difficult?

Think carefully today.
  1. What do you control?
  2. What should you control?

September 27, 2015

A Frictionless/Seamless Shopping Experience


Vendors want it this way - no, they don't want all the competition - like you, they'd prefer that you are the only place where a customer shops. But they love the complexity - complexity confuses marketers, and when marketers are confused, they hire vendors.


I was in a meeting - one of the marketing leaders said that his job was to create a "seamless shopping experience" - he then lectured the attendees about how to integrate a veritable plethora of channels in a logical, perfect alignment that surprised and delighted customers.

There's only one seamless shopping experience - manifested two ways.
  1. Customer knows your brand, visits your website or mobile experience, and buys something in that visit.
  2. Customer knows your brand, drives to a store, and buys something during that trip.
That's it.

Everything else becomes a multi-step nightmare that you don't control. 

Twenty years ago, marketers had a lot of control.

Today, not so much.

We'll chat more about excellent marketers and what they control as the week progresses.

September 24, 2015

Just Five Days Away!!!

You have five more days ... five days ... FIVE ... (5) ... to get in for the first run of The MineThatData Elite program. C'mon ... five days!

Here's the details ... here's what you get for $2,000 per run (click here). The program is virtually free. You get to see how your merchandise productivity is changing. You get to see how your new + reactivated buyer counts are changing. You get to learn how you stack up against other program participants. No longer do you have to call up an industry guru and ask "what are you hearing out there in the industry", because you'll have the perspective of other companies, delivered to your inbox.

And you get the pick axe lapel pin. What more could you want?

Contact me right now (kevinh@minethatdata.com) and get yourself included in the first run of the MineThatData Elite Program.

September 23, 2015

Audit Everything

It was 1992. Toronto won the World Series. Alabama was National Champion in College Football. Duke won the NCAA Mens Basketball Championship. Mark Wahlberg was a pop culture sensation. A Clinton was running for President. A generation later? Interesting.

Each Friday at 3:50pm, it was my duty to submit a job to our mainframe computer (#cloud - see, things really don't change much). I would ask that the customer file be scored with my statistical models. Once the file was scored, I would ask the mainframe computer to print the customer record for one out of every ten thousand customers. On Monday morning, I would have a stack of 400 pages of tractor paper, with one customer record printed on each side of the page. I'd go through each page, making sure that the customer metrics were right ... making sure that the multiplication of customer metrics by modeling coefficients was done correctly ... making sure that the end result was a correct score.

Do you do that today, in your world of "BIG DATA"? Do you audit anything? More on that in a moment.

On one Friday at 3:50pm, I was in a hurry. Had to get home. Maybe it was because it was Cheese Days in Monroe, and I wanted to get there early, who knows? So instead of typing the number "10,000" for the sampling rate (1 in 10,000), I typed in the number "100", submitted the job, got in my brand new 1992 Mercury Topaz (#lemon), and off I went.

Sixty-four hours later, I waltzed up to my cubicle in Building Five at Lands' End, and was greeted by seven boxes of printed customer records. Seems the folks in the Information Technology department take things literally - they actually printed one out of every one hundred customers, and they delighted in the process of dumping the records off at my cube. I can only imagine how much they enjoyed sticking it to me - they printed these records every three weeks for the seven years prior - they knew what was supposed to happen - they could have said something - they didn't say anything!!

I learned a valuable lesson - I needed to audit the document designed to help me audit the scoring of the customer file!

2015 has been a very odd year. I have received more bad data in 2015 than in the eight prior years of MineThatData combined. Columns don't align in datasets. Customers are missing. Demand is missing. Customer records are alphanumeric or character in files that must be joined, making it hard to join records. Annual sales totals are not audited. Customer counts are not audited. Item numbers are recycled, making it impossible to analyze merchandise trends over time. Channel information (#omnichannel) is not standardized. Email clicks are not recorded. Payment amounts for each keyword are not recorded. Customer records are not de-duped.

A generation ago, your data structure was "in-sourced". You had a team of 30 people, working together to make sure that everything was right.

Today, your marketing team is "out-sourced". Your pay-per-click vendor may or may not have audits in place to make sure paid search is executed properly. Your email vendor may or may not have audits in place to make sure your campaigns are executed properly. Your housefile database vendor (#cloud) may or may not have audits in place to make sure your database is maintained properly. Your housefile scoring vendor may or may not bother to make sure that the equations are being applied properly. Your cloud-based social data vendor may or may not make sure that @gumbo72 is truly engaged with your brand.

Because everything is outsourced, you don't have any control over what happens when bad data is generated in one part of your ecosystem. When your co-op misinterprets something and determines that a customer in Montana is pregnant, well, that data is fed throughout the co-op ecosystem, causing the mortified 63 year old in Bozeman to be pummeled with baby-centric marketing nonsense. But rest assured, this #datadriven action can be #optimized, making sure that the right ad gets placed in front of the right customer at the right time.

What a bunch of nonsense.

Say your co-op made an error that resulted in the 63 year old in Bozeman being pummeled with baby-centric marketing nonsense ... and say that the co-op had to receive a printout of every single error they made ... all 80,000 a week ... and say that the co-op modeler had those records dumped in her office on Monday morning ... do you think the dump truck load of results would cause the analyst to think twice about putting proper audits in place?

Audit everything.

If you have to, get in your 1992 Mercury Topaz, drive to your #cloud based co-op vendor, and inspect their records by hand. Visit your pay-per-click vendor, and ask to see their data cleansing process, from A to Z. Visit your housefile database vendor, and analyze every single aspect of their data cleansing process. Make sure your trusted partners are doing their job properly.

Audit everything.

September 22, 2015

Communication Matters

By the way, I'm not the only person talking about having a system - this is from newly hired Milwaukee Brewers General Manager David Stearns (click here).

  • The GM-to-be said in his introduction that every team has the same basic “need to acquire, develop and keep controllable young talent — quality Major League talent.” Doing that, he said, involves “develop[ing] a process and a system that allows you to consistently generate that pipeline, even as you are competitive at the Major League level. There are a couple of teams that appear to be able to do that, and that’s certainly our goal here in Milwaukee.”

You can already see that he's talking about new merchandise ... a system to constantly generate new merchandise. See - I'm not the only one who thinks this stuff is important.

Back to the six established components of my system - one more to follow:
  1. Annual Repurchase Rates dictate the strategy a marketer needs to employ - and in most cases, that strategy is to find a ton of new customers.
  2. If we have to find a ton of new customers, and most of us have to find a ton of new customers, we need healthy levels of merchandise productivity to get the job done.
  3. If we have poor merchandise productivity, we optimize via profit to get the most out of a bad situation. If we have good merchandise productivity, we optimize via profit to obtain healthy sales and profit growth.
  4. It is very difficult to sustain long-term annual repurchase rate increases, new customer increases, or profit optimization without healthy new item development. Therefore, new item development is a critical component of business health.
  5. Channels seldom offer multiplicative gains. Channels interact with each other, causing customers to make tradeoffs instead of spending more money.
  6. It is hard to learn how valuable a tactic is until you stop (or start) performing the tactic.
None of the six components matter if you cannot clearly communicate the impact of the six components.

Back in 1994, our CEO, Bill End, strongly recommended to the leadership team in my department that I needed to learn how to sell my ideas. I was sent to Dale Carnegie training.

Life changing.

The training proved critical when, back in 2001, I was struggling with how to communicate the fact that customer behavior was changing. Back then, at Nordstrom, our catalogs were running -30%, +/-, while the online channel was doubling or tripling in size.

Well, you try to communicate what is going on, via data, and you open yourself up to a lot of criticism. "You analyzed everything wrong." "You didn't factor in the fact that catalog customers became online customers, and therefore, catalogs cause online orders to happen, and therefore, catalogers deserve a raise." "Please stop stuffing catalogs into the packages of my online buyers, you moron". "No ideas are bad ideas, we're only brainstorming here, but for heavens sake, stop suggesting that the catalog has any meaning in a modern world." "Without the catalog funding all of the online marketing efforts, the online marketing staff wouldn't even have a job.

Circular arguments, nonstop in-fighting, you get the picture.

I had to figure out how to communicate findings and truth ... quickly.

I created a daily quiz.

Yup ... a question ... three choices ... one answer. Everybody guessed (hopefully). 

The secret, of course, is that by doing this 250 times over the course of a year, the truth about customer behavior became self-evident. And because it was a quiz, it became very hard to argue against the "right" answer. The "right" answer was "C". So why are you arguing?

Now, that's the kind of communication strategy that can get you fired. Conversely, it's the kind of communication strategy that can align a group of people around a common goal.

You can share all the facts you want ... but in many cases, a third of your audience will side with you, a third could care less, and a third will be against you. You have to find a communication style that gets the third who could care less to pay attention. If you can get that audience to understand your message, if you can get them to pay attention to the six components of the system above, well, then you're on your way to making a difference.

My system has seven components.
  1. Annual Repurchase Rates dictate the strategy a marketer needs to employ - and in most cases, that strategy is to find a ton of new customers.
  2. If we have to find a ton of new customers, and most of us have to find a ton of new customers, we need healthy levels of merchandise productivity to get the job done.
  3. If we have poor merchandise productivity, we optimize via profit to get the most out of a bad situation. If we have good merchandise productivity, we optimize via profit to obtain healthy sales and profit growth.
  4. It is very difficult to sustain long-term annual repurchase rate increases, new customer increases, or profit optimization without healthy new item development. Therefore, new item development is a critical component of business health.
  5. Channels seldom offer multiplicative gains. Channels interact with each other, causing customers to make tradeoffs instead of spending more money.
  6. It is hard to learn how valuable a tactic is until you stop (or start) performing the tactic.
  7. Communication matters.

September 21, 2015

It's Hard To Learn How Valuable A Tactic Is Until You Stop (Or Start) Performing The Tactic

There are now five components of my system:
  1. Annual Repurchase Rates dictate the strategy a marketer needs to employ - and in most cases, that strategy is to find a ton of new customers.
  2. If we have to find a ton of new customers, and most of us have to find a ton of new customers, we need healthy levels of merchandise productivity to get the job done.
  3. If we have poor merchandise productivity, we optimize via profit to get the most out of a bad situation. If we have good merchandise productivity, we optimize via profit to obtain healthy sales and profit growth.
  4. It is very difficult to sustain long-term annual repurchase rate increases, new customer increases, or profit optimization without healthy new item development. Therefore, new item development is a critical component of business health.
  5. Channels seldom offer multiplicative gains. Channels interact with each other, causing customers to make tradeoffs instead of spending more money.
The sixth component is this ... "It's hard to learn how valuable a tactic is until you stop (or start) doing the tactic".

Another way of saying this is "let's test it!"

It's hard to know whether you should open a Nordstrom Rack store within a third of a mile of a Nordstrom Full Line Store unless you test doing it in one market.

It's hard to know whether you should personalize your email campaigns or if you should "batch-and-blast" them via the condemnation of the pundits out there.

It's hard to know what might happen if you discontinue your catalog marketing program unless you discontinue the program for a year or more to a subset of your audience.

It's hard to know if retargeting works or not unless you stop retargeting to a customer audience for six months.

It's hard to know if a full digitization of your retail channel works or not unless you try a full digitization of your retail channel in a select number of markets.

It's hard to know if social media provides customer service benefits unless you allow your social media team to provide customer service benefits to your customer base.

Almost all of the components of my system are strongly influenced by prior testing outcomes.

It's been my experience that many companies are afraid to spend money on new tactics (#roi) ... and that many companies are afraid to discontinue existing tactics. It is hard to learn how valuable a tactic is until we stop (or start) doing the tactic.

I couldn't have possibly known that I could reach a much younger and energetic audience via my analytics podcast unless ... unless ... unless I decided to start performing the podcast. Until then, everything was theoretical. Now I know the result. A highly positive result.

There are now six components in my system, with one more to follow:
  1. Annual Repurchase Rates dictate the strategy a marketer needs to employ - and in most cases, that strategy is to find a ton of new customers.
  2. If we have to find a ton of new customers, and most of us have to find a ton of new customers, we need healthy levels of merchandise productivity to get the job done.
  3. If we have poor merchandise productivity, we optimize via profit to get the most out of a bad situation. If we have good merchandise productivity, we optimize via profit to obtain healthy sales and profit growth.
  4. It is very difficult to sustain long-term annual repurchase rate increases, new customer increases, or profit optimization without healthy new item development. Therefore, new item development is a critical component of business health.
  5. Channels seldom offer multiplicative gains. Channels interact with each other, causing customers to make tradeoffs instead of spending more money.
  6. It is hard to learn how valuable a tactic is until you stop (or start) performing the tactic.

September 20, 2015

Channels Seldom Offer Multiplicative Gains

To date, there are four components to my system:
  1. Annual Repurchase Rates dictate the strategy a marketer needs to employ - and in most cases, that strategy is to find a ton of new customers.
  2. If we have to find a ton of new customers, and most of us have to find a ton of new customers, we need healthy levels of merchandise productivity to get the job done.
  3. If we have poor merchandise productivity, we optimize via profit to get the most out of a bad situation. If we have good merchandise productivity, we optimize via profit to obtain healthy sales and profit growth.
  4. It is very difficult to sustain long-term annual repurchase rate increases, new customer increases, or profit optimization without healthy new item development. Therefore, new item development is a critical component of business health.
The fifth component is this one ... "channels seldom offer multiplicative gains".

Oh, I know, this one goes against everything you've been taught (#multichannel #omnichannel).

Before there were channels, there were "battlin' business units", as I used to call them at Lands' End, some twenty-five years ago. There was a good customer - and this customer would be pummeled by each business unit. Instead of being mailed 12 catalogs a year, this customer received a monthly Lands' End catalog, and 9 Home catalogs, and 9 Kids catalogs, and 6 Mens Tailored catalogs, and 5 Womens Tailored catalogs ... that's 41 catalogs. That's a lot of catalogs.

And yet, something was wrong. If I measured annual repurchase rates over time, the proliferation of catalogs from 12 to 41 did not correspond with a marked increase in annual repurchase rates - and corporate-wide merchandise productivity barely increased. The small increase in sales aligned with essentially no increase in profit, yielding a diluted EBITDA. When your bonus is based on EBITDA percentage, you decide to dig deeper into the mess.

Turns out that these catalogs were competing against each other. If we mailed a Mens Tailored catalog, we learned (via testing - more on testing coming soon) that half of the sales were cannibalized from other channels. In other words, if a Mens Tailored catalog generated $5,000,000 in sales, $2,500,000 were incremental sales, and $2,500,000 would have happened anyway had the catalog never been mailed.

#OhOh.

Then I get to Eddie Bauer ... I was asked to measure what happened when we opened new stores in new markets, and what happened when we opened new stores in existing markets. The results were not multiplicative.
  1. A new store in a new market resulted in the decrease of catalog/online sales for a period of time, until the new store reached its potential.
  2. A new store in an existing market resulted in the decrease of sales in the stores that already existed, and resulted in a decrease in sales in catalog/online channels, until the new store reached its potential.
  3. The new store in the new market maybe generated $1.6 million in sales ... of which, $1.1 million was new business, with $0.5 million cannibalized from existing channels/stores.
In other words, what I observed in retail at Eddie Bauer aligned with what I observed in old-school cataloging at Lands' End.

Then, I get to Nordstrom. We noticed something similar to what was noticed at Eddie Bauer. - open stores, and sales shift around a bit (though not as much as at Eddie Bauer). Even better, we shut down $36,000,000 in catalog advertising. When we shut the catalog down, the trade journalists called me ... "are you an idiot?" They printed their nasty-grams for all to see. Those were fun calls and fun articles to read. Nobody called a year later when sales INCREASED and profit INCREASED and we maxed-out bonus payments, the trade journalists conveniently ignored the positives. Turns out sales shift. Not everything is multiplicative. In fact, it is extremely rare to find anything that is multiplicative - you need network effects to make that happen - and you need immense word-of-mouth to make that happen - both are nearly impossible.

What you learn when you actually write your own code to measure your own results is that channels are interactive, they are not multiplicative. Gains in one channel come at the expense of sales in another channel.

What you learn when you read trade journals and listen to consultants / researchers is that channels are multiplicative, and if you don't expand into every channel and you do not thoroughly digitize your business from top to bottom, you will go out of business.

Ask yourself why retailers cannot grow at a time when they are following the vendor playbook of adding hundreds of digital channels? Look at Macy's, for instance. 

These facts became a key part of my system - maybe the most controversial part of my system. Most do not believe in this part of my system. They'll tell you that I am "measuring engagement incorrectly". Fine. Engagement has nothing to do with profit. I'll measure profit instead. When you measure profit, you learn channels are not multiplicative. And that's ok.

There are now five components of my system:
  1. Annual Repurchase Rates dictate the strategy a marketer needs to employ - and in most cases, that strategy is to find a ton of new customers.
  2. If we have to find a ton of new customers, and most of us have to find a ton of new customers, we need healthy levels of merchandise productivity to get the job done.
  3. If we have poor merchandise productivity, we optimize via profit to get the most out of a bad situation. If we have good merchandise productivity, we optimize via profit to obtain healthy sales and profit growth.
  4. It is very difficult to sustain long-term annual repurchase rate increases, new customer increases, or profit optimization without healthy new item development. Therefore, new item development is a critical component of business health.
  5. Channels seldom offer multiplicative gains. Channels interact with each other, causing customers to make tradeoffs instead of spending more money.
Two more components follow. You can hardly wait, can you?

Ads

Politics have diverged (on both sides) so far from reality that you'd think the sole purpose of politics is to turn up the crazy so that online publishers and cable networks can make a killing via advertising.

A Women's soccer game in July drew nearly 30,000,000 viewers. The game, as are all soccer games, was played without commercial interruption, lasing about an hour and fifty minutes.. A typical Sunday Night Baseball game on ESPN might be seen by one or two million people (#AmericasPastime) - and have five commercial breaks between every single half-inning - eighteen total. In fact, if commercial breaks were reduced from 300 seconds between half-innings to 180 seconds between half-innings, a baseball game would be 18 minutes shorter, making a serious difference in a game that takes about three hours to play. Folks complain about pace-of-play. Ads don't help.

A typical NFL game has around twenty commercial breaks, featuring about 100 commercials in total ... that's fifty minutes of commercials. Yes. Fifty minutes. And if last weekend was any indication, twenty minutes of Fan Duel and DraftKings commercials are in your future. Somebody wants you to gamble five dollars so that the pool is big enough that a handful of algorithmic players will make money.

It's trendy for folks to "binge watch" television programming, skipping ads altogether.

Catalogs are thrown out altogether ... catalogers are lucky if 3 in 10 of their mailbox-stuffing commerce-centric stories are ever looked at.

And online, ads are out of control, to the point where a new ad blocking app rocketed to number one, then was pulled within just two days.

I met with a retargeting Executive - the individual asked me to convince a large brand that nearly every order the brand generated touched one of his ads somewhere online - the inference being that his ads caused the order, as opposed to his ads annoying a customer who would purchase anyway. Don't worry - he'll find an attribution vendor who will share his point of view.

I fielded a call from a Marketing Executive - the individual wanted to know why different attribution solutions yield such fundamentally different answers. "It's like either choice I make will cause me to make bad mistakes, and I'll never know which mistakes are mistakes or are reality." I brought this topic up on Twitter, and quickly received an unfavorable reply from an Executive from a popular attribution vendor. Don't question digital. Customers love a one-to-one targeted ad delivered at the right time to the right person with the right message that is relevant and engaging and anticipated. Or so we are told.

Digital folks want you to spend money on advertising.

Customers are getting really tired of advertising.

Early in 2015, I spoke at a conference about the importance of merchandise. The audience had little interest in that topic. Folks were more interested in the cost of Facebook or Google advertising. We focus on merchandise, of course, because when we sell something that the customer loves, the customer does the advertising for us. Think about all of the media outlets who cover Apple ... think about how much Apple spends on that ($0). The best marketers don't have to spend money on intrusive advertising that the customer actively tries to ignore, because customers love the merchandise being sold, and they love the story being told about the merchandise.

Advertising always seems to win.

But in the short-term, something is in the air. A window is closing. An intrusive advertising window seems to be closing. Those of us who figure out how to deal with this window probably have an advantage. That advantage is a fusion of the merchandise we sell and the story we tell. 

If you don't believe me, keep spending money on retargeting ads that customers try to block. Keep spending money on television commercials customers fast forward over. Keep spending money on co-op names that average 63 years old and push your merchandise assortment so far away from what a 40 year old customer likes that you are one day closer to going out of business. Look at your own behavior. Do you fast-forward through ads? Do you dislike pre-rolls? Are you annoyed when you try to read an article about Donald Trump, only to have to sit through a fifteen second ad? How might your customers view your activities, given how you feel about other marketers?

September 17, 2015

Just 12 Days Away!

In 12 days, the first wave of participants in the MineThatData Elite program will begin the process of capturing three years of purchase history.

The data will be delivered to me by October 15. Once I have the data, I will run a comp segment analysis and a new+reactivated buyer analysis on the participating businesses. Better yet, I will use a variant of averaging to obtain participant comp segment performance, and participant new+reactivated buyer analysis.

In other words, participants will fully understand how their merchandise productivity changed over the past two years, and participants will know how their metrics compare to other participants.

All this for $2,000 per run ... three runs per year (through September 30, January 31, and May 31).

The analysis is virtually free. You'll learn a lot. What would stop you from participating?

Remember, prices go up before the January 31 run, so this is your chance to get in and save yourself money. Contact me (kevinh@minethatdata.com) right now!!!

September 16, 2015

New Items

I previously outlined three components to my system:
  1. Annual Repurchase Rates dictate the strategy a marketer needs to employ - and in most cases, that strategy is to find a ton of new customers.
  2. If we have to find a ton of new customers, and most of us have to find a ton of new customers, we need healthy levels of merchandise productivity to get the job done.
  3. If we have poor merchandise productivity, we optimize via profit to get the most out of a bad situation. If we have good merchandise productivity, we optimize via profit to obtain healthy sales and profit growth.
In the first five years of my consulting work, I tried very hard to focus on marketing solutions. Most projects focused on what the marketer could do different. Then the marketer would go back to the drawing board, try something different, make a few million dollars of incremental profit, but not change the trajectory of the business. You understand how demoralizing that is, right? You live it every single day. You work your rear end off, and at the end of the day, a -12% trend becomes a -9% because of you ... you stem a problem and make your company money, and half the company still beats you up because you are a poor marketer.

Might the customer not want to buy the merchandise you sell?

In the real world, we can clearly see the importance of new merchandise. Last week's Apple presentation is proof of that ... we can't wait to see what changes they are rolling out, and if the changes aren't significant enough, we blast them for not introducing enough new merchandise.

When it comes to the companies we work for? We know this is true as well. So why don't we focus on this issue? Go try to find an industry consultant, vendor, researcher, or trade journalist who gives more than a passing mention regarding this issue - it's almost impossible to find a focus on this important area of business success.

80% of my Merchandise Forensics projects identify a new merchandise / new item issue. 80%! That's a big number. And by focusing on this issue, my system has an advantage over every other solution that ignores merchandise while advocating marketing magic or sound marketing discipline. When merchandise productivity / new item productivity improves, marketers look great without even having to do anything!!!

To date, I've outlined four key components to my system:
  1. Annual Repurchase Rates dictate the strategy a marketer needs to employ - and in most cases, that strategy is to find a ton of new customers.
  2. If we have to find a ton of new customers, and most of us have to find a ton of new customers, we need healthy levels of merchandise productivity to get the job done.
  3. If we have poor merchandise productivity, we optimize via profit to get the most out of a bad situation. If we have good merchandise productivity, we optimize via profit to obtain healthy sales and profit growth.
  4. It is very difficult to sustain long-term annual repurchase rate increases, new customer increases, or profit optimization without healthy new item development. Therefore, new item development is a critical component of business health, and is a key component of my system.

September 15, 2015

Profit

Ok, we've already discussed the two components of "my system":
  1. Annual Repurchase Rates dictate the strategy a marketer needs to employ - and in most cases, that strategy is to find a ton of new customers.
  2. If we have to find a ton of new customers, and most of us have to find a ton of new customers, we need healthy levels of merchandise productivity to get the job done.
The third component is "profit".

Let's go back to Lands' End, circa 1993. Our circulation director was Lori Liddle, an accountant turned cataloger. Lands' End was a company obsessed with segment-level sales plans by catalog, and for good reason ... it turns out, there were nuggets of gold in those segment-level sales plans.

Ms. Liddle would riddle her poor circulation planners into oblivion, all in an effort to get the most out of them, and to get the most out of the business. She'd question their ad-cost assumptions ... "this catalog is $0.53 cents ... that can't be true, last year the catalog was $0.55 cents" ... or "did Finance give you a 58% gross margin percentage, because according to finance, gross margins are projected to be 58.3%, and if we can get an additional 0.3 points of margin, we can circulate an extra 150,000 catalogs, growing sales by $300,000".

She did this over and over and over, asking her people to re-run scenarios until they couldn't take it anymore!

And she was right.

All of that focus on profit would lead to an additional million or two million dollars of profit, on an annual basis, or three million, or five million. Owners, investors, and finance folks love profit.

I noticed that this individual was invited to meetings she had no right to be in ... and her thorough knowledge of profit allowed her to provide input that no circulation expert had any right to offer. I learned that profit was the language of business.

So in 1999, at Eddie Bauer, with merchandise productivity in the toilet, I borrowed all of Ms. Liddle's techniques, swapping out the bloated and underperforming monthly catalogs for prospect catalogs, and in the process, helped generate record levels of profit.

When you don't have sufficient merchandise productivity, you use profit measurements to optimize the mess you are in.

When you do have sufficient merchandise productivity, you use profit measurements to grow the business faster than you ever thought you could grow it.

We now have three components in my system:
  1. Annual Repurchase Rates dictate the strategy a marketer needs to employ - and in most cases, that strategy is to find a ton of new customers.
  2. If we have to find a ton of new customers, and most of us have to find a ton of new customers, we need healthy levels of merchandise productivity to get the job done.
  3. If we have poor merchandise productivity, we optimize via profit to get the most out of a bad situation. If we have good merchandise productivity, we optimize via profit to obtain out-sized sales and profit growth.


September 14, 2015

Merchandise Productivity

Remember - my system begins with measurement of annual repurchase rates. In most cases, we work for companies that have annual repurchase rates (among twelve-month buyers) of under 40%. Sometimes the percentage creeps up to 45%. Seldom do we work for companies like Nordstrom (75% when I was there) or Wal-Mart or Starbucks that have crazy-high repurchase rates.

A low annual repurchase rate forces us to spend disproportionate time finding new customers. Most of us do not spend disproportionate time finding new customers. Most of us want to believe we can, as one CEO told me, "squeeze more juice out of a lemon". Always remember that each lemon has a finite amount of juice in it ... and once you've squeezed all the juice out of the lemon, the lemon doesn't look much like a lemon anymore, now does it?

If we want more juice, we need to find more lemons.

A former VP of mine, Bill Michel, was being pummeled in a meeting at Eddie Bauer back in the late 1990s. The merchants and creative folks were suggesting that -20% sales hits were his fault - that he was doing a poor job of marketing their products and their lifestyle spreads. He waltzed up to the greaseboard, and jotted down, with a black marker, the following percentages.
  • 70%.
  • 20%.
  • 10%.
He told the audience that 70% of the reason why business works is because of merchandise. He said that if the company offered what the customer wanted to buy, everything else would take care of itself.

He then turned to the creative team. He said that 20% of the reason why business works is because of how the merchandise is presented to the customer.

Finally, he informed the room that 10% of the reason why business works is because of how marketing optimizes the 70% / 20% merchandising / creative mix.

Then, he sat down. That's when the gnashing of teeth began. "You idiot" ... "that's crazy" ... "blah blah blah" ... the merchants and creative folks immediately began informing the marketing VP of what a moron he was. It was at that moment, where the marketing exec received a cold, unfeeling tongue-lashing from defensive merchants and creatives, that I realized that merchandise productivity meant everything.

After that meeting, the marketing exec told merchandising and creative that he owned "prospect catalogs". In other words, he said that if he was going to be accountable for new customers, then he wanted to be accountable for the vehicle that generated new customers. He made a deal with the merchandising and creative team - they could own the monthly catalog stream, while he would own the prospect catalog stream. They could do whatever they wanted with housefile customers ... he would do whatever he wanted to find new customers.

Merchandising and Creative accepted the deal.

That's when things got interesting.

The marketing exec picked only winning items, and he picked only winning creative, when assembling the prospect catalogs. The core monthly catalogs had lifestyle spreads featuring products that did not always appeal to the core audience.

The results?
  • Prospect catalogs were anywhere between -5% and +10% to plan.
  • Monthly housefile catalogs were anywhere between -20% and -10% to plan.
This taught me that I had no choice but to measure merchandise productivity. Within the same company, two different approaches led to two completely different outcomes - same merchandise - different methods of presenting the merchandise - led to completely different outcomes.

Within six months, the cries from the merchandising / creative teams grew louder. "Those prospect catalogs are not accurately reflecting 'the brand'". Well, maybe. See, there were two different takes on what 'the brand' meant to the customer. The marketing take on 'the brand' worked at least 10% better than the creative take on 'the brand'.

I was the circulation guy ... so I decided to "optimize" the strategies. In the past, 3,000,000 people would receive a monthly housefile catalog and 1,000,000 would receive a prospect version of the catalog. Going forward, I measured profitability, and swapped the mix ... 800,000 would receive the monthly housefile catalog and 3,200,000 would receive the prospect version. You should have heard the howls from the executive team, from the catalog business team, from the merchants, and from the creative folks. Of course, I argued that the merchandise productivity was not sufficient to mail the large version ... I argued that when the large version of the catalog achieved sufficient merchandise productivity, I would swap the mix back to the large version of the catalog.

In 1999, we had the most profitable year in the history of the catalog/online channel.

Merchandise productivity means everything. Without it, nothing a marketer does matters. It is terribly hard to market your way out of a merchandising and/or creative mess.

Ok, we have two pieces to "my system":
  1. Annual Repurchase Rates dictate the strategy a marketer needs to employ - and in most cases, that strategy is to find a ton of new customers.
  2. If we have to find a ton of new customers, and most of us have to find a ton of new customers, we need healthy levels of merchandise productivity to get the job done.