May 31, 2017

Customer Loyalty

Sometimes, we think we're working for Starbucks, or Amazon, or McDonalds - especially when we think about our customer base. We believe (mistakenly) that our customers are LOYAL ... that they love us and cannot help but tell every person on social media (non-stop, mind you) just how much customers love our BRAND!

Then you actually analyze how many times a year customers purchase from us. The story typically looks like this:

The customer is purchasing 1.34 times per year - and the metric doesn't change. At. All.

This is where my readers get their marketing tactics lined up ... "WE'RE GONNA FIX THIS!"

No, you are not going to fix this.

And that's just fine! Most of my highly successful clients have a annual purchase profile not all that different than what you see above. These clients have hope, because they focus all of their efforts on low-cost / no-cost customer acquisition programs. They generate profit via countless profitable orders from first-time buyers who are not coming back.

This is the opposite of losing a ton of money on a first order by spending too much marketing to a customer and then hoping to make up the difference via customer loyalty.

Unless you work for Starbucks or Amazon or McDonalds, spend minimal time focusing on customer loyalty. Give your organization hope for the future by acquiring customers via low-cost / no-cost customer acquisition programs.




May 30, 2017

Get The Bad News Out Of The Way Quickly

Look at the two graphs below. The first graph illustrates annual twelve-month buyers on a rolling twelve-month basis. The second graph illustrates annual demand volume on a rolling twelve-month basis.


Annual demand is a hot mess, isn't it? Flat then down then flat then up then down. You can see that Management is trying a lot of different things.

Look at the first graph - customer trajectory is consistently negative.

So, you get those two images out of the way, and fast. Share with folks that your customer trajectory isn't great, and share with folks that top-line demand can improve, based on what you are seeing.

Then get busy demonstrating why demand increased. This is where you can find hope!




May 29, 2017

Hope!

There's a reason to be optimistic about the next eighteen months!

Specifically, our challenges are largely within our control.

E-commerce brands are still growing and are still finding new customers. There are myriad programs to employ to find new customers - creativity is critical. A fusion of digital and creativity is going to pay off in a big way. Those who focus here have hope!

Retail brands are going to learn how to capitalize on store closures. On one front, when a store closes the digital marketing team will work like crazy to recapture lost store customers, converting them to the digital channel. These "digital conversion programs" are going to be a big part of 2018 strategy. Those who focus here have hope!

Catalog brands are going to evolve in 2018. The realization that catalogers are tied to Baby Boomers will cause a shift in focus ... away from trying to be all things to all people (which isn't working) to instead meeting the needs of the retiring Baby Boomer. There are a lot of 401k accounts that will empty into the profit and loss statement of smart catalogers ... this is the focus for 2018 for smart catalogers. Those who focus here have hope!

It is time to be optimistic about 2018. We have seven months to craft new strategies to win in 2018. Who is with me? Who has hope?

We are going to do great work the rest of this year, preparing us for a much-improved 2018. I'm hopeful. So are you!

Click here to purchase Hillstrom's Fix It!!





May 27, 2017

Liquidations


We wonder why we see 40% off everywhere? Why do we have to liquidate everything?

I was on a call recently - the team was planning their merchandise assortment for Spring 2018.

Spring 2018.

Meanwhile, the "fast fashion" folks see a trend, create merchandise related to the trend, and the merchandise is available within a few weeks. You read results, you move forward with the stuff that works, you stop the stuff that doesn't work. Everything is "test and see".

Or, you plan an entire assortment for Spring 2018. What happens when you order 25,000 widgets and the customer only wants 6,000 widgets? What happens when you order 6,000 widgets and the customer wants 25,000 widgets?

There's another trend that is even more disturbing ... it comes up in my data all the time. Since many of my clients do not have a supply chain that can compete with e-commerce and fast-fashion brands, my clients will cut back on new merchandise, focusing on the stuff that they can forecast accurately. In other words, the inventory management team and merchandising team respond to a bad supply chain by starving the company of new merchandise. As a result, the assortment becomes terribly stale and only appeals to the long-time buyer. Marketing misinterprets this trend as "only our loyal customers are buying, we better have a good loyalty program in place to keep 'em" and next thing you know you have a catalog brand appealing to a 64 year old shopper.

You measure this stuff, right? You can easily detect it in your own data. The queries are easy to construct.

There's hope, folks. There's time to change, to improve. Not a lot of time, but enough to beat down all of the competitors who are moving in the wrong direction.

May 25, 2017

What A Bizarre First Half Of The Year!!

There are maybe forty different things all happening at the same time. Maybe sixty. I don't know. I'm not a prophet. But I'll share some thoughts next. Next week, we start focusing on what we control, and we employ a hopeful journey into the second half of 2017, ok?

Demographics:  Not many folks want to talk about it, but the migration of the Baby Boomer generation toward retirement has sweeping consequences for all of us. Mall-based retailers wouldn't be struggling as much if Baby Boomers were 20 years younger. We need to adjust ... we should have a Baby Boomer plan and a non-Baby-Boomer plan.

Income:  Most of the country never recovered from "The Great Recession". You see this in retail - Nordstrom Rack is growing, Nordstrom Full Line Stores are contracting in terms of sales. The "middle" of our country has been trimmed over time - the impact is any "middle" dependent company is struggling. So we have a choice - pick the top of the income spectrum, or pick everything else. It's hard work in "the middle".

Amazon:  You cannot blame Amazon for what happened in the past 2-3 years. You can blame Amazon (maybe) for what happened over the past 20 years, but then you have to take accountability for their growth and your tepid results, because they've been growing for 20 years in plain sight and we are paid to compete against them and we failed to compete properly. It's on us to improve. And the odds are now stacked against us. When will the Leaders emerge, Leaders with interesting and innovative ideas?

Omnichannel:  A complete failure, and maybe the enabler of Amazon's rise. Look what happened to Amazon in the past five years, and look at what happened to retailers who adhered to the omnichannel thesis. How did omnichannel theory work for Macy's? How did a single channel and rapid delivery and low prices and a huge assortment and data science and Prime and personalization and innovation work for Amazon? Have you looked at Amazon's share price over time vs. Macy's? Wow.

Gate Keepers: Facebook, Google and Amazon are your gate keepers. Facebook owns awareness. Google owns intent. Amazon owns product. Your 2018 strategy could look to avoid Facebook / Google / Amazon ... if you choose to integrate them with your business in 2018, then understand that they own you and you go where they want you to go. You get to decide what you do. Do you want to do what Facebook / Google / Amazon tell you to do, or do you want to chart a different path? Your choice.

J. Crew:  A fascinating case study. Everybody has an opinion. It's not their fault that Macy's and their competitive set struggled and are closing stores and that saps traffic from J. Crew. It is their fault that they did not see that people couldn't afford mid-priced and expensive merchandise. When you are soaking up profit as J. Crew did 5-6 years ago, it's hard to focus on the future, because the present is so profitable. One could argue that Madewell was a smart focus on the future - how many successful brands have you launched in recent years? But The Great Recession tore mall-based apparel apart at the seams (tee-hee), and not many of us played the right cards to figure out how to move forward.

Price:  People are raising prices on new items, creating all sorts of challenges. When new item prices go up and new items don't sell, companies offer blanket 40% off promotions, which deflates the price of winning/existing items. We keep deflating the price of winning/existing items because of our failures elsewhere, and it's killing us. I see this happen all the time.

People:  Talent is pooling in places where there are emotional benefits (great work environment, great people) and where people can get paid. Talent is avoiding traditional companies where 2% cost-of-living salary increases and a lack of promotional opportunity is coupled with non-stop hands-on direction from 57 year old professionals. Traditional companies cannot hope to compete on talent unless the work environment changes and the risk/reward/compensation environment changes.

New Merchandise: I keep giving you free advice - we all need more new items, especially more new winning items. We increase our chances for success if we have more new items. And yet, our industry is not listening to the free advice. I wouldn't tell you this if I didn't repeatedly see the strategy work. Tell me why you aren't following the advice? And tell me why the heck so many of you won't even bother to run simple queries to see if this is an issue?

Creativity: I bring up Duluth Trading Company and the groans are heard from all across New England. They are a Midwest cataloger (gasp) with 28 consecutive quarters of growth. How many consecutive quarters of growth have you experienced? Digital strategy drained the creativity out of our businesses - and without creativity, there is nothing to compete against Amazon with. A way to beat Amazon is via creativity and personality.

ROI: We can measure the return on investment of a tweet, second-by-second. How many of us know the proper investment horizon for a new customer - in other words, how many of us know whether a three-month payback or twelve-month payback or sixty-month payback is what is "right"? We've forgotten how to properly evaluate business success, and it's our own fault. We know the reasons our businesses aren't growing ... we are choosing to perpetuate our own challenges.

Vendors: I spoke at a conference a few months ago. One of the attendees told me that her "vendor partners" were more important to her than her co-workers ... she said "these are the people I work with". It's fine that this employee loves her vendor partners, as long as her vendor partners deliver sufficient return on investment. It is wrong that she devalues her co-workers. I repeatedly observe contempt for co-workers in other departments. I suppose I was guilty of this as an Analyst/Manager/Director as well. I was wrong. We need to be part of a team, and our team needs to at minimum equalize our co-workers to the vendor partners we enjoy working with.

P.S. on Vendors: Give this story about the Seattle Seahawks a read (click here). Pretend the defense represents your co-workers. Pretend the offense represents the fusion between a marketing department and the vendor community. Think carefully about the article, then apply it to your company.

Store Closures: We are in the early innings of store closures. Every store that closes reduces store traffic for surrounding stores, which causes more stores to close. This trend will end when the next generation of retail comes to the forefront and generates new traffic from a younger generation of customers. FYI - mall-based retail is behaving a bit different than standalone store retail is behaving. Pay attention to these differences, ok?

Urgency: At a conference, a Professional told me that she wasn't going to move forward on important initiatives until "conditions were perfect". Her company was struggling. Is it any wonder her company was struggling? There's a difference between chaos, urgency, and complacency. Urgency is the place to be on the continuum.

Decisions: A Professional told me at a conference that he's not allowed to make decisions, but instead, he has to "float ideas past the Executive Team, and they like people who execute their ideas more than they like new ideas." Life is too short to work at a company where you are not allowed to make decisions.

Budgets: I keep hearing that budgets are frozen. Then I ask what happens if Google/Facebook performance improves? "Oh, then we'll spend more money." That means that budgets are not frozen. We quickly adjust to reward those who deliver profit to us. Expand your horizons and increase budgets for any/all partners and employees who are delivering disproportionate profit.

Entertainment/Sports: Pay attention to what sports teams do to create urgency. Their tactics are coming to commerce. Fast fashion represents the top-of-the-first-inning in commerce urgency. Would you be more likely to visit a store if the store was going to sell out of what you want soon, or would you be more likely to visit a store if you know the pair of Dockers will be there on sale forever? And if Dockers will be on sale forever, why not just buy 'em online and cut the store out of the equation altogether? The future of retail success will borrow liberally from the tactics that sports teams use to be successful. 

Acquisition: The story of e-commerce in 2017 is the end of customer acquisition, which led to "brands" being acquired. VCs aren't dumb - they can see when things are slowing down, and they sell to those who do not see when things are slowing down. E-commerce is hitting a wall, and needs a "next breakthrough" to continue the historical trajectory. This breakthrough will be independent of the choke hold that Facebook / Google / Amazon have on customer acquisition.

Loyalty: Loyalty is being misread by an entire industry. Across my client base, the average annual repurchase rate for 12-month buyers is 37%. This means that maybe 5% or 10% of the customer base is loyal, everybody else is being churned (hopefully in a profitable manner). And if we work terribly hard, we have 13% of the file in loyal status instead of 10%. In other words, loyalty doesn't solve our problems. Low-cost / no-cost customer acquisition solves our problems. And we're not focusing on that, are we? And I get it, you'll say that my client base is "biased" low because they aren't succeeding. So let's assume that the annual repurchase rate for 12-month buyers is 45%. The story does not change, does it?

Forecasting: The smartest companies are forecasting what the next five years look like, by product category, by marketing channel, and in total. Based on the forecasts, they are taking proactive action today to prevent problems tomorrow - ask the e-commerce brands who sold out to large brands what their forecasting algorithms told them, ok? "Forecasting" is the discipline we need to focus on in 2018. Agreed?

Optimism:  For the first time in maybe five years, I am filled with optimism. I can see the future happening right in front of us. I mean, when Duluth Trading Company posts 28 consecutive quarters of sales gains and they're a midwest-based catalog brand (gasp), then anybody can make magic happen (of course, you'd have to do something interesting like they do, so that's where the thesis breaks down). My online clients are doing AMAZING things. The future is bright. Next week, when we come back to work, we'll focus on fixing our businesses, ok?

May 24, 2017

Two Recent Requests

There were two recent requests for information ... so I thought I'd pass each along to you.


Request #1:  A vendor asked if it were possible to see what my five-year forecasting framework looks like - in case there were an opportunity to build the framework into existing analytics software. I prepared this document to outline the methodology (click here). If you are Google or Adobe or somebody else and you want to partner on transitioning the methodology to your application, email me your thoughts (kevinh@minethatdata.com).


Request #2:  A professional asked if I sold the programming code I use to perform my project work? The answer, of course, is "maybe". All of my methodologies are outlined in my booklets (click here to see Hillstrom's Fix It, for instance). But let's try something. If you click here, you can download the SPSS code I use for my Rolling 12 Month File Analysis. If you like what you see and would like to purchase all of the code for my "Fix It" framework, contact me (kevinh@minethatdata.com) and we can chat.

Test Outliers

I've been recording my blood pressure readings. Let me show you the last seven systolic readings.
  • 135
  • 162
  • 120
  • 110
  • 127
  • 117
  • 124
One number sticks out, right? It's that 162 number. 

Here is the average including the 162 number.
  • 128
Here is the average excluding the 162 number.
  • 122
Which number is "right"?
  • 128 or 122
If you have a credible reason for throwing out the 162 figure, then 122 is right. If you have a credible reason for keeping it, then 128 is right.

The same logic applies to the tests you perform.

We all see our tests ruined by outliers. Here's a common one. Here are average order values for customers who purchased in a test.
  • $119.
  • $84.
  • $99.
  • $79.
  • $143.
  • $21,477.
Why in the name of Snedecor and Cochrane would you include the $21,477 order in your results?

Well, you'd keep it in there if 15% of all orders were $21,477 or greater.

But if 0.1% of all orders are $21,477 or greater? You adjust it down ... change it to $150 or whatever the 99th percentile is for average order values.

I'm confident few of you are adjusting for outliers.

And then you wonder why your test results are all over the board?

I know, I know, you don't have the coding chops to remove outliers, and you don't want to invest a half-year learning how to code, so you want a rule-of-thumb that you can apply. Ok, try this one on for size. If you are concerned about large orders influencing your test results, analyze response-rate / conversion-rate. If response/conversion results are significantly different than spending results, you have an outlier problem. If you have an outlier problem?
  • Measure the difference between response/conversion. Say it is 6%.
  • Average your average order values between test/control groups.
  • Apply the "average" average order value to both groups.
  • This leaves you with a 6% difference in spend between the two groups.
Thoughts?

May 23, 2017

Late To The Game On Craftsy

Not sure how I missed this one over the past half-decade, but that's the point of this post.

Click here to visit Craftsy ... sold to NBC Universal for a reported $230,000,000.

Videos / Tutorials / Commerce.

Mind you, anybody could have done this.

I mean, who wouldn't want to take a quilting class with Kate Colleran (click here)? You mean you don't know who Kate Colleran is? Neither do I! And that's the point. Who are the stars in your industry? And why don't you have relationships with the stars in your industry? What's stopping you?

Now, the reported sale price suggests that late investors aren't getting all their money back. Pay close attention, dear readers, as e-commerce brands are being sold right and left. Customer Acquisition is drying up. Google/Facebook have locked it up, and you don't get a key to the lock (but you do get to pay to have the key turned every day). Facebook owns Awareness, Google owns Intent, and Amazon owns your Product Category. The only way to beat that is to do something unique and special, something that isn't easily copied.

It's your job to beat Google/Facebook/Amazon. That's why you are being paid a credible salary.

And there are enough "Craftsy" style brands out there to demonstrate that there is a path to the future.

May 22, 2017

And You Get The Five Year Forecast

When you join this run of The MineThatData Elite Program, you get the following.
  1. Your comp segment analysis for the past few years.
  2. File evolution over the past few years - explaining how your business is changing behind the scenes.
  3. A five year forecast for where your business is headed.
Yesterday we talked about file evolution. Today we'll briefly discuss where your business is headed.


This is the base-case for a business, and it doesn't look good, does it?

This is what needs to happen for this business to grow at a healthy clip ...


New buyer counts need to "go nuts" (in red) for the business to grow at a reasonable rate.

With the file evolution analysis and the five year forecast, it's hard to figure out what would stop you from participating in this round.
  1. Comp Segment Analysis.
  2. File Evolution.
  3. Five-Year File Forecast
  4. Existing Clients = $1,000.
  5. New Clients = $1,800 for this run, then you are in at the $1,000 level going forward.
Contact me to participate (kevinh@minethatdata.com) ... I will share file formats and expectations with you.

May 21, 2017

The MineThatData Elite Program: New Direction For June

I'm going to try something different this June.

Instead of the typical Elite Program analysis comparing comp segment performance and new+reactivated buyer performance, I am going to give Elite Program participants a chance to "experiment" in the new research I'm performing for clients.

Here's what you will get.
  1. Your typical comp segment performance and new + reactivated buyer performance.
  2. No aggregated results as has been common over the past two years.
  3. A five year file forecast coupled with a historical view of how your customer file evolved over the past few years.
In my projects, I am seeing interesting trends involving the "evolution of the online business". In other words, things are happening - business is changing - and the impact on the future of the "brands" we manage is something we need to understand.

Remember last month when I shared with you how various businesses were evolving and changing? This was an example where a store closed (please visit the website if the .gif doesn't work via email).


This was another case where a business was evolving/changing over time.


In this case, the traditional catalog business and products associated with the traditional catalog business were being de-emphasized, coupled with significant changes in promotional rhythm. The red cells were where there were many customers - and in the upper right portion of the image those cells had good customer value (and were being strategically shrunk-down over time).

So we'll do something different this time.
  1. Existing Members pay the $1,000 fee they've always paid.
  2. This time, non-Elite members will pay $1,800 for this run, and $1,000 going forward.
  3. I'll run the comp segment analysis per usual.
  4. I will show you how your file has evolved over time.
  5. I will show you how your file is going to evolve over the next five years.
Contact me right now (kevinh@minethatdata.com) for details for the June run!


P.S.:  I understand that budgets are tight ... that's why I'm doing something like this. You pay virtually nothing, I tell you how your business is evolving and then share with you where your business is headed. What's not to like about that?

May 18, 2017

Hillstrom's "Fix It"!!!

Today I announce that "Hillstrom's Fix It" is available for purchase on Amazon (click here to visit Amazon and see the booklet).


The booklet covers some of the ground contained in the Diagnostics / Merchandise Forensics booklets. More important, the booklet illustrates how I piece together different aspects of your customer performance to identify what is wrong with your business, so that we can "Fix It"!
  • Rolling 12 Month File Analysis (identifies customer issues).
  • Comp Segment Analysis (identifies merchandise productivity issues).
  • The Annual Repurchase Table (tells us whether merchandise or customer acquisition is most important to your business - or both).
  • The Life Table (illustrates the critical importance of marketing to new customers within the sixty days following a first purchase - demonstrates when a customer becomes "loyal").
  • Merchandise Forensics (to identify the specific merchandising issue holding back your business).
  • Forecasting (which shows us where the business is headed and allows us to stop problems before the become too big to manage).
  • Trade Area Analysis (for retailers who are struggling with declining performance).
  • When A Store Closes (illustrating if the online channel can recapture sales lost by a closed store - critically important in the era of store closures).
The booklet is designed to provide HOPE ... sure, there are "economic headwinds" and there's "Amazon" ... but there's also all of the stuff THAT WE CONTROL!! Why not figure out what we control and then do something about it!

We have the skills to fix the problems that are within our control.

The booklet figures out what is going on that is within our control ... so we can "fix it".

So buy the booklet and get busy fixing your problems ... just follow the prescription and you will figure out what is wrong. It's not hard!


AND A SPECIAL OFFER FOR LOYAL MINETHATDATA READERS AND CURRENT/PRIOR CLIENTS ONLY!!!

Normal project pricing looks like this - and introductory "Fix It" pricing is now included (I have not run a prior "Fix It" project from start-to-finish, FYI).

You can see the pricing in the "Fix It" column ... let's try something for long-time loyal readers. For the first three affirmative responses prior to 11:59pm PDT on May 22, your prices are $7,200 / $12,000 / $16,000 / $22,400 / $28,000 / $32,000 instead of the regular prices of $9,000 / $15,000 / $20,000 / $28,000 / $35,000 / $40,000.

As you know, you only get "deals" from me when I introduce something new and interesting. This project structure is certainly interesting, because it links all of the tools / techniques used in ten years and 200+ projects to identify what is wrong with your business, allowing you to "fix it"!!!

Look, you are dealing with a lot of junk these days. It's hard to run a store when 20% of the traffic is gone because your competition is failing. It's hard to run a catalog when your online customers are fundamentally different and are pushing your business in a new direction. And most important, it's become really hard to run a solid e-commerce operation when Google/Facebook/Amazon have cut off customer acquisition opportunities.

So please, take advantage of this opportunity and we'll figure out how to fix what is in your control!! Let's do something positive. Let's identify what is going on within our control ... and then let's "fix it"!!

May 17, 2017

Trying To Drive Retail Sales With Print (Gasp)

Here's your list of tips ...

  • Only evaluate incremental sales (mail vs. holdout lift) ... do not fall for vendor-measurement methods that over-credit sales (and by proxy, result in vendor over-payment). This tip is non-negotiable. If your vendor doesn't recommend this style of measurement, find another vendor. Now.

  • Not all customers are equal. Your 0-12 month online-only buyer who lives 14 miles from a store is much less likely to buy in-store than a 13-24 month retail-only buyer.

  • Know how all channels fit together. It may be much smarter to use email and social to get a customer to get in a car and drive to a store than to pay vendors $1.00 to send a catalog that is merchandised to drive a customer to your website.

  • The merchandise that causes an in-store customer to respond is different than the merchandise that causes an online customer to respond. Know these differences, and merchandise your marketing activities accordingly. Avoid the omnichannel-thesis, which demands "sameness" across channels.

  • Today it is easier to get a retail customer to buy online than to get an online customer to buy in stores. Strongly consider hiring retail creative professionals to improve your marketing efforts to drive a customer into a store.

  • Strongly consider marketing programs that find new retail customers, given that so little of retail spend is incrementally driven by marketing.

  • Consider using print to promote events. There has to be a reason for a customer to purchase in a store ... or else the customer simply buys online.

May 16, 2017

I Don't Believe My Eyes

About two years ago, I got into a real "rhubarb" with a VP at a Major Catalog Vendor that my catalog readers know and love.

This person, who knows math, decided to ignore the simple math of a year-long mail/holdout test outcome.

The results are listed in the table here ... dummied up to protect the innocent.

In total, the test showed that for this retail brand with a catalog channel the organic percentage was 83%. In other words, if you didn't mail catalogs to a 12-month housefile buyer for a year, 83% of the volume would remain. Worse, because so much of the volume was organic, the $17.00 of incremental sales (after subtracting the holdout group from the mailed group) was unprofitable. Finally, the test results showed that the catalog was terrible at driving retail sales ... with 92% of retail sales being organic and just 8% driven by a catalog.

I told the Vendor Executive that this is why this client had cut back on catalog circulation ... you simply run the p&l at a segment level and it made no sense to send 12 catalogs a year when you could send 2-3 catalogs a year.

That's when the Vendor Executive went off.

"You don't actually believe the results of the test, do you? I don't. I don't believe my eyes."

The Vendor Executive then executed the strategy that catalog vendors love to execute. The Vendor Executive used "Mail" results to defend profit.
  • Mail Results = $101 * 40% Profit Factor - $12 Mailing Cost = $28.40 Profit.
This, of course, is Lizard Logic.

You don't look at how the mailed group performed, you look at how the mailed group performed vs. how it would have performed if it had not been mailed.

You look at your results this way, right? 

If we look at results this way, the Vendor Executive loses a lot of money.

The Vendor Executive doesn't want to lose a lot of money.

So the Vendor Executive told me that I should follow industry best practices and "protect" $28.40 profit. Which (of course) I told the Vendor Executive was not the right way to analyze the situation.

The Vendor Executive then told me that they had signed a contract with this retailer and that they would put in the "new" method of analyzing results ($28.40 profit) and that my services were no longer needed.

Think about who gets paid when results are read "incorrectly".
  • The USPS makes more money.
  • Boutique Catalog Marketing Agencies make more money.
  • Merge/Purge vendors make more money.
  • Your Paper Rep makes more money.
  • Your Printer makes more money.
  • Your Co-Ops (3+) make more money.
Who makes less money?
  • You.
Who are you in business to protect?
  • You.
It's time we started choosing to support our own co-workers and our own company ... prioritizing our co-workers over the vendors we pay to provide services ... especially when vendors tell us to sub-optimize our results so that their results are optimized.

May 15, 2017

Multiple Online Channels Have To Be Good, Right? (Please Say Yes)

Probably not.

Let's compare two customers. The first customer spent $200 weighted historical dollars online. You remember her future profile, right?
  • Call Center = $4.40
  • Online = $60.83
  • Email = $6.29
  • Search = $9.85
  • Retail = $12.84
  • Total = $94.20
Let's say that we instead get this customer to spend $200 weighted historical dollars via email and search ... a hundred dollars each. What does the future profile look like now?

  • Call Center = $2.00
  • Online = $12.63
  • Email = $34.29
  • Search = $32.25
  • Retail = $10.84
  • Total = $92.00.
Look at that! Three things happen.
  1. Once the customer is hooked on channels, the customer doesn't spend much money online ... the "channels" have to exist for the customer to purchase. Without email and without Google, the customer isn't buying. Hint - Google likes that!
  2. Total spend doesn't really change - channels actually cause a drop in spend of about 2%.
  3. Retail spend drops by more than 20%. Hooking the customer on online channels diverts some spend away from stores. Omnichannel!!
These things are all happening at a macro level, and they are contributing to the slow drain of the retail channel and the slow drain of loyal online buyers who buy because they love your brand.

Worse - the email dynamic is frequently fueled by zealous marketers who offer the biggest discounts/promotions to shop via email marketing - we convert a customer to the email channel because of low prices and 40% off. 

You are running these models and you fully understand how your channels interact with each other, right?

May 14, 2017

But Email Marketing, That Helps, Right?

Here are our models from a few days ago.

Now one might think if we just use email marketing to push customers into stores, then things will be fine.

But what happens if the customer buys "right now" from the email marketing campaign?

Here's the story for a $200 retail-only buyer.
  • Call Center = $6.00
  • Online = $5.83
  • Email = $2.89
  • Search = $6.45
  • Retail = $77.64
Let's say that the customer becomes a $100 retail / $100 email buyer.
  • Call Center = $3.90
  • Online = $9.63
  • Email = $32.19
  • Search = $8.15
  • Retail = $43.34
This isn't much different than the online scenario - the act of a customer buying via email instead of retail transitions the customer toward a future that is skewed more toward direct-channel purchases than in-store purchases.

I know, I know, you think you are a magical marketer who can get the customer to buy something "extra". So what does it look like if the customer spends $200 in stores and $100 via email?
  • Call Center = $5.30
  • Online = $12.43
  • Email = $32.89
  • Search = $9.85
  • Retail = $78.04
If that happens, retail spend is essentially not impacted, but online spend increases.

But that's generally not how the world works. In general, the customer trades off between channels and doesn't increase spend across channels.

In my retail-centric projects, I repeatedly observe cases where hawking retail customers via email marketing ultimately yields an online purchase because of email marketing - and that purchase changes the trajectory of customer behavior moving forward. All of our "digital" efforts over the past fifteen years have had an impact - we've pushed the customer right out of stores. This is good for "digital" ... not as good for "retail". For "the customer", it's usually a wash.

May 11, 2017

What Do Channel-Centric Models Look Like?

Here's an example of very simple models predicting how much a customer will spend next year in each channel, based on weighted historical spend. More on model development in a moment.


The models are built (in this case) just for twelve-month buyers.

Historical spend is weighted as follows (based on another modeling process):
  • 0-12 Month Spend = 100%.
  • 13-24 Month Spend = 60%.
  • 25-36 Month Spend = 36%.
  • 37-48 Month Spend = 22%.
Let's evaluate a handful of customers. We'll start with a $200 weighted retail customer.
  • NY Call Center Spend = $6.00
  • NY Online Spend = $5.83
  • NY Email Marketing Spend = $2.89
  • NY Search Marketing Spend = $6.45
  • NY Retail Spend = $77.64
We easily see that this customer is going to spend money in stores next year, end of story. That's where the marketing effort needs to be. Still - customers are spending $21 in the direct channel ... that's a lot. We'll compare that with the pure online customer later.

Ok - how about a customer with $100 online and $100 in store?
  • NY Call Center Spend = $5.20
  • NY Online Spend = $33.33
  • NY Email Marketing Spend = $4.59
  • NY Search Marketing Spend = $8.15
  • NY Retail Spend = $45.24
The customer mixes dollars across channels - but notice that more money is spent in the future in the direct channel (call center + online + email + search) than in retail. This is a dynamic that is slowly imploding the retail industry.

How about a customer with $200 online and $0 in store?
  • NY Call Center Spend = $4.40
  • NY Online Spend = $60.83
  • NY Email Marketing Spend = $6.29
  • NY Search Marketing Spend = $9.85
  • NY Retail Spend = $12.84
The direct channel gets $81 of volume to just $13 in stores.

We have a unique shift happening, don't we?
  • Retail Only buyer spends $21 in direct channel next year.
  • Online Only buyer spends $13 in stores next year.
These shifts are helping drive the implosion in traditional retail. When customers have reasonably equal historical spend, future spend shifts online ... the only way stores overcome this is to increase customer acquisition activities ... and that's hard to do when stores are closing.

More on the topic after the weekend.




FAQ From Catalog Mail / Holdout Posts

There were three posts (click here and here and here) ... and you had questions about the posts.


Question:  Attribution routines have to be better than catalog mail/holdout tests, right? They take all advertising channels into account, and they use machine learning, or so I've heard. So they're just better, and I don't have to execute catalog mail/holdout tests. Ok?
  • If your vendor tells you that you do not need catalog mail/holdout tests in your attribution routine, please go find another vendor. The best attribution routines measure what happens when you do / do-not mail catalogs, and adjust accordingly.
Question:  We only have 90,000 twelve-month buyers, so we cannot execute holdout tests. Sorry, that's just life.
  • You can execute holdout tests, you are choosing not to and are using a small twelve-month buyer file as the excuse. There is nothing stopping you from holding out 3,000 twelve-month buyers for six months. Nothing. Hold them out. Learn. Then run your business more profitably.
Question: We aren't going to run tests in every segment in every mailing, that's just stupid. What is the "right" test design?
  • There is no right test design. There are your goals. And then there is a testing plan that allows you to see if your goals are being met or not. Most of my client base pick one of two paths ... they either test every single mailing (not as smart) or they test customer segments across 4-6 months (much smarter). But again, if you want to test every mailing, have at it, it's better than doing nothing (which is what many catalogers do).
Question:  What is the "right" sample size?
  • There is no right answer to this question.
  • Have too few customers in your test and your test results will bounce all over the place ... 38% organic, 83% organic ... and then you'll say "I don't trust testing" and you'll be right and it will be on you because you had too few customers in your test panels.
  • If you only have 50,000 twelve-month buyers, you are better off going with 2,000 or 2,500 in your holdout group ... but then DO NOT measure the incremental value of each catalog ... only measure results 4-6 months later, in total.
Question: Our results are all over the board. Why?

  • Remove outliers.
  • Adjust all orders in the lowest 5% and highest 5% to the lowest 5% and highest 5% and your results are going to look much more consistent.
Question: After eight weeks, our test results change. Why is that?
  • The role of prior catalogs diminishes after eight weeks. Focus on that third month and beyond. And this is why you focus on long-term results.

Question:  My vendor says you are nuts and that clients don't need to execute tests.
  • It's easy for a vendor to point out what everybody else does right/wrong in a private conversation with you with the doors closed.
  • Ask your vendor to point out where they publish how their methods generate more profit for clients than Mail / Holdout tests ... ask them to show you where you can find their published works, for free, shared for the world to see, ok? If the vendor doesn't even have the courage to publish their findings (for free) and earn attention that leads to new clients, how good can their findings be?
Question: E-commerce brands are using print all over the place, and they're not measuring via mail / holdout tests, so that means we're fine too, am I right?
  • No.
  • There are two reasons e-commerce brands are not using mail / holdout tests results. They either don't know they should, or the are being bamboozled by their vendor to demonstrate that they are generating $11.00 per customer per mailing (which will cause the e-commerce brand to mail more catalogs, which gets vendors paid even more). It is sad when e-commerce brands are being bamboozled by their vendor partners and don't know they're being bamboozled.
Question:  I executed six tests last year. Here are the organic percentages I measured ... 50% ... 58% ... 61% ... 39% ... 43% ... and 54%. What is the organic percentage I should use?
  • Average your results ... 51%.
  • When you execute a test, you are getting an outcome that fits within a normal distribution of potential outcomes. This is why you have to repeatedly test, so that you find out what a reasonable outcome actually is.
Question:  What does it mean when our organic percentage was 50% three years ago, then 54% two years ago, then 57% one year ago, and is now 60% today?
  • It means that your business is becoming less and less dependent upon catalog marketing.
  • It means you need to have an honest conversation with your Executive Team.
  • Run scenarios and tell your Executive Team how much of a profit difference there is between what "as-is" strategy yields and what could be done using an ever-increasing organic percentage.
Question:  How do I apply the organic percentage to individual segments?
  • Let's assume you already measure the organic percentage for online customers and traditional catalog shoppers and already know that there is a big difference.
  • Ok, say a segment generated $3.00 during an eight-week period, and you know from prior testing that the segment is 60% organic. This means that 40% is catalog-caused. 
  • Your calculation is $3.00 * 0.40 = $1.20 catalog driven demand.
  • Your profit calc, assuming 40% flow-through rate and a $0.60 ad cost is $1.20 * 0.40 - $0.60 = ($0.12). You lost $0.12. The mailing (to this segment) was unprofitable.
  • Your vendor will use the following equation ... $3.00 * 0.40 - $0.60 = $0.60 ... PROFITABLE! Your vendor will tell you to keep mailing.
  • See how this stuff works? Your paper rep, your printer, your boutique agency, your merge/purge house, your database provider ... they all generate more money if you use the fraudulent $3.00 figure ... you generate more money if you use the accurate $1.20 figure derived from Mail / Holdout test results.
  • This is the very reason why some in the vendor community steer you away from Mail / Holdout test results. You hurt their bottom-line when you measure things the right way.
Question: If you stop mailing for a year or more, the organic percentage gets worse. This is proof that catalogs work, right?
  • This is proof that you shouldn't stop mailing altogether. Mail 1x or 2x per year instead of 24x per year and you'll see a different outcome.

If your vendor partners are quoting numbers to you that are not derived from Mail / Holdout results, please question your vendor partner why they are purposely misleading you? They might mislead you because they don't honestly know that they should be using Mail / Holdout results. That's fine. Then teach them why they are not providing accurate results. I'm 100% ok with that.

If your vendor partner is purposely misleading you (and it comes up all-the-time in my work), have a serious discussion about "why" your vendor partner is misleading you on purpose. Are they frightened that they will struggle to stay in business if they don't make catalog performance look great? That happens, and often. I understand that one as well, and am forgiving of that possibility.

But if your vendor partner is purposely misleading you so that they can be more profitable while you are less profitable, please, go find another vendor partner. It's hard enough just to stay in business these days, much less have a third-party skim your profit from you so that they can make more profit themselves.

And yes, readers, you already know who falls into that last paragraph ... we all know who falls into that last paragraph. If we keep working with those folks when we know they are ripping us off, then we are the problem, right?