Wins Above Replacement

In baseball you have a team of 26 players (30 in September) who all contribute to varying degrees of success.

Maybe your team is on pace to win 99 games. A team of strictly "replacement players" (i.e. players who don't cost anything or are being called up from AAA) is expected to win maybe 52 games. Therefore your team generated 47 "Wins Above Replacement". Each player, based on their contribution (i.e. statistics) is mathematically assigned how many wins they contributed over the course of the season.

Just look at the WAR column for the Milwaukee Brewers (click here) for an example. Or in the unlikely event that the Brewers aren't your favorite team, click here to see the WAR column for the Boston Red Sox.

E-commerce isn't any different. You might have a half-million twelve-month buyers. And whereas WAR is a backward-looking metric in baseball, PAR (profit above replacement customer) can be viewed as a forward-looking metric.

PAR.

Profit Above a Replacement Customer.

When you are actively trying to embrace Customer Development, you want to know how much each customer is worth ... what is their Profit Above a Replacement Customer?

What is a Replacement Customer?

It's the point where you need to replace the customer with a new customer. It's the point where the customer is no longer responsive enough to generate sufficient profit to push your business forward.

More on this topic next week.

Your Investment Strategy

A key component of Customer Development Strategy is knowing how much to invest in marketing to make sure you have a healthy business in the future.

Let me show you an example.

Let's say that you lose $15 profit acquiring a customer. Then, the customer delivers the following amount of annual profit in each subsequent year.

• Year 0 = $8 (this is in the remainder of the acquisition year).
• Year 1 = $12.
• Year 2 = $8.
• Year 3 = $5.
• Year 4 = $4.
• Year 5 = $3.

Each year you acquire 100,000 customers.

In the first year, you lose $15 per customer and then generate $8 downstream profit. In total, you are down $700,000 in the first year.

In the second year, you lose $700,000 from the new customers, but you get $12*100,000 = $1,200,000 profit from customers acquired the year prior. You earn $500,000 profit.

In the third year, you lose $700,000 from new customers, you get $1,200,000 from last years newbies, and you get $8*100,000 = $800,000 from customers from 2 years ago. Total = $1,300,000 profit.

In the fourth year you lose $700,000, you add $1,200,000, you add $800,000, and you add 5*100,000 = $500,000 from your initial cohort, for a total of $1,800,000 profit.

In the fifth year you lose $700,000, you add $1,200,000, you add $800,000, you add $500,000, and you add 4*100,000 = $400,000 from your initial cohort, for $2,200,000 profit.

And in the sixth year you lose $700,000, you add $1,200,000, you add $800,000, you add $500,000, you add $400,000, and you add 3*100,000 = $300,000 from your initial cohort, for $2,500,000 profit.

If you know what you gain downstream, you know how much you can spend to acquire a customer today. Losing $15 per customer today is wonderful, because downstream you make a fortune.

Leverage the concepts here to identify what the "right" payback window is. Don't just assume it is a 12-month window, ok?

Not Bad

For one brand, April 2020 - May 2020 was a bumper crop ... a COVID-bump of epic proportions. The CFO tallied up the receipts, and bonuses were paid out.

But what happened next?

This table looks at recency/frequency of the customers acquired during those two months.

The results aren't bad. There is an enormous glut of customers who haven't bought since (yellow colored cells).

About 7% of the customers are still active within a three month window (i.e. they purchased within the past three months). That's quite good, to be honest.

It is really hard to keep your customer base active and purchasing regularly. The natural inclination of customers is always decay - they gradually slip away and become harder and harder to reach.

Your marketing department has three key functions, ranked in order of importance.

1. Create Awareness that leads to first-time buyers.
2. Develop first-time buyers into subsequent purchases.
3. Harvest profit from loyal customers.

This company did (1) and (2) pretty darn well, didn't they?

Oh Boy

FYI - I'm moving on to math after this one, ok?

Fans didn't like long lines and too few employees to satisfy their needs ... perceived or real (i.e. water in 90 degree sun is a real need).

If you ever want to see what America is like in 2021, spend a few minutes and read through the comments on this Twitter post (just visit https://twitter.com/explore and look it up). Both sides.

So here we have your e-commerce or retail business. You have two needles you can move.

1. Salary + Benefits.
2. Love + Safety.

Many of you will tell me that you can't afford to pay somebody more than $11/hour to work in the call center or warehouse or retail store. You'll tell me that if you do that your business won't profitable.

Then you've got to move the Love + Safety needle. Care about your people & show it.

You can do that, right?

We're Just Going To Lie A Little Bit In Our Email Marketing, Ok?

On 9/9 this "omnichannel brand" sent out an email campaign saying "Today Only, 30% Off".

On 9/10, the same "omnichannel brand" sent out an email campaign saying "Today, 40% Off".

I guess technically the 30% offer was only for September 9.

But if you spend $200 on 9/9 you actually paid $140 ... spend $200 on 9/10 and you actually paid $120. The "omnichannel brand" cared so much about you that they were willing to charge you $20 more.

This is yet another example of a lack of love in commerce. Maybe the two are mutually exclusive, but they don't have to be mutually exclusive.

This also means that you, the reader, have an opportunity to fill that void of loveless commerce with love. Why not do just that?

It's Time!!

Yup, time flies when you are in a pandemic. Or drags on forever. One of the two.

Anyway, it is time for the next run of The MineThatData Elite Program! For just $1,800 (first-time members) and $1,000 for continuing members, you'll get your typical suite of analyses ... your rolling twelve-month view of the world, your comp segment analytics (which measure how your merchandise productivity compares to last year during COVID and vs. two years ago when life was somewhat more normal), and your annual rebuy table.

Your bonus analysis? I will perform a comparison of long-term value of the customers acquired pre-COVID to the customers acquired during COVID and then during this odd period we currently reside in. This won't be a full lifetime value analysis, for that would cost $$$$, but you'll know how the changes over the past few years are impacting your future.

Want to see what you'll get? Email me to learn more (kevinh@minethatdata.com). If you are an existing partner, you'll be invoiced next week.

Key deadlines:

• Payment due by October 15.
• 5 Years of data, one row per item purchased, due October 15.
• Analysis and writeup completed by October 31.

Thanks,

Kevin

Getting The Word Out

There's a fraction of the population who says "nobody wants to work". Well, don't tell that to this guy, who manned a busy corner on an afternoon when the official high hit a record of 110 degrees ... on September 9.

There's a group of omnichannel gurus who demand that retailers "just be remarkable", as if that is easy to do.

But there's also a group who thinks that paying somebody $11/hour to stand on a street corner on a 110 degree afternoon and hold a sign for four hours is "doing something".

This is not an example of "love" in retail. If you loved a co-worker, you wouldn't make the co-worker stand outside when it is 110 degrees out and hold a sign. You just wouldn't do that.

There is a gaping void in commerce. Love is being pushed out ... probably has been since the beginning of time.

And this means that you, as somebody who cares, have a huge opportunity to fill that void. Go fill it. There are other ways to get the word out about your appliance event.