The Problem With Retail

We've got three types of traffic in retail.

1. EARNED:  This is traffic we earn, via customer loyalty or word-of-mouth or free uses of social media or email marketing.  We somewhat control this via our successes or failures.
2. PAID:  This is traffic we pay for. Google, Facebook, Display Ads, TV Ads, Billboards, Radio, and countless other channels/tactics. We control this source of marketing via our marketing budget. The traffic flow generally is generally variable, following some form of a a^x function, where "a" is the marketing investment and "x" is the efficiency slope of marketing success.
3. SHARED:  This is traffic we share with our peers. It's the traffic that Macy's brings into a mall, traffic that buys an old-school Bose Wave Radio. If Macy's closes or loses traffic, Bose loses business. That's bad for Bose.

The secret to fixing retail is understanding how much of your sales come from EARNED, PAID, and SHARED sources.

Let's say that you are a brilliant synergistic customer experience channel-less frictionless marketer. This area of marketing generally falls under the EARNED banner. If you do a great job, you increase your EARNED traffic.

Pretend that your traffic comes from the following sources:

• EARNED = 30%.
• PAID = 20%.
• SHARED = 50%.

Now pretend that your synergistic customer experience channel-less frictionless entertainment-centric strategy results in a 10% increase in EARNED traffic (that would be really, really awesome ... and really, really hard to do).

And let's say that you boost PAID traffic by 5% via a 10% increase in marketing spend.

Finally, let's say that your SHARED traffic drops by 17% because all of your peers in your mall-based stores are not doing well.

Next Year's Traffic = 0.30*1.10 + 0.20*1.05 + 0.50*0.83 = 0.955.

You worked terribly hard to grow what you control by 10% and your total traffic drops by at least 4%.

Now you know what needs to be solved.

To be successful in retail, you have to come up with a solution for the SHARED traffic problem.

SHARED traffic will continue to be a challenge, so retailers have no choice but to increase EARNED/PAID traffic faster than SHARED traffic decreases. The problem, of course, is that if you spend money to grow EARNED/PAID traffic you de-leverage the p&l. If you don't spend money, traffic decreases and sales decrease as well.

In other words, retailers have to become really CREATIVE. That's going to be one of the key ways that we get through the SHARED traffic problem.

If your favorite retail guru doesn't have a plan for the following equation, your retail guru has some work to do:

• x*EARNED + y*PAID > z*SHARED

Gliebers Dresses: We're Not Gonna Do That!

Yes, this is fiction. But you don't have anything better to do today than read something like this ... it's the middle of July for crying out loud. So you are going to sit there in your comfortable office chair and you are going to enjoy this, #amirite?

Setting:  The Gliebers Dresses Executive Conference Room.


Glenn Glieber (Owner):  You know, I had big hopes for the Red Sox this year. Every team in New England should at least get a chance to play for a championship. But this year the Celtics failed and the Red Sox appear to be doing the same. What am I supposed to do this October?

Lois Gladstone (Chief Financial Officer): Spend time running the business?

Glenn:  What?

Lois:  Nothing.

Meredith Thompson (Chief Merchandising Officer):  You're assuming we'll still be in business come October, with all of the tariffs and other stuff going on.

Glenn Glieber: We're always dealing with headwinds.

Roger Morgan (Chief Operating Officer):  Headwinds schmedwinds.

Glenn Glieber:  What?

Roger: Nothing.

Pepper Morgan-Pressley (Chief Marketing Officer):  I think Roger is suggesting that we control our own destiny and that we shouldn't try to find blame to make ourselves feel better.

Meredith:  Is that what you were thinking, Roger?

Roger:  I don't know. Regardless, I just finished reading this fascinating paper from Woodside Research.

Lois:  Oh here we go again.

Roger:  The paper, priced at $995, is the only paper that Woodside Research has released on the catalog industry since their ill-fated 2004 document titled "Catalogs and Retail 2020: The Golden Combination".

Meredith:  Woodside Research is talking about catalog brands? Did they mention us in the report?

Roger:  No. But they talked about a concept that is really intriguing. It's called Bifurcation.

Glenn:  Is that a show on Fox News?

Roger:  No.

Glenn:  CNN?

Roger:  Woodside Research says that Bifurcation is the endgame of catalog marketing. They suggest that as the traditional catalog audience retire, specifically, Baby Boomers, that catalog marketing will split into two pieces. The small piece will be customers age 55-74 who are retiring and have no interest in anything outside of traditional catalog marketing. Meanwhile, almost all other customers will care about e-commerce and have no interest in catalogs whatsoever. Over time, the e-commerce cohort will overwhelm the catalog cohort, ending traditional catalog marketing.

Meredith: I hate Woodside Research.

Roger:  No really, listen. They say that the small cohort that still adores catalogs will REALLY adore catalogs. They say you'll be able to mail them forty or more times per year.

Lois:  How many?

Roger:  Forty!! Or more.

Meredith:  Oh, we're not gonna do that.

Roger:  Do what?

Meredith:  Mail forty catalogs a year to a customer. We don't have the creative staff to produce forty catalogs per year. That's nuts.

Roger:  They're not saying you need forty traditional in-home dates. They're saying that printers can dynamically create 16 page or 32 page catalogs with merchandise personalized to the interests of the customer.

Meredith:  We're really not going to do that!

Roger:  Why not?

Meredith:  Well for starters how will I forecast inventory?

Roger:  How do you forecast inventory online when you have no idea what keywords Pepper is buying?

Meredith:  What are you doing without my permission Pepper?

Pepper:  I'll tell you what I'd like to do without your permission.

Meredith:  What?

Pepper:  Nothing.

Roger:  The whole online side of the business is run without knowing where traffic will come from. It's a big mix of business. Traffic comes from catalogs, from search, from social.

Lois:  How many customers come from social, seven?

Roger:  The point is, you have no idea what customers from channels outside of the catalog are going to buy, and yet you somehow forecast inventory properly.

Meredith:  I'm not sure about that.

Roger:  So all we have to do is find a partner who can help us dynamically merchandise the catalogs at a customer level.

Meredith:  I merchandise our catalogs. I curate them. I do the work. Not a computer.

Roger:  I'm not talking about monthly campaign catalogs like we've been doing for more than forty years.

Meredith:  What we've done for forty or more years is what catalog marketing truly is. What you are talking about isn't catalog marketing, it is sorcery.

Roger:  Is this sorcery, Pepper?

Pepper:  It's easy to execute from a marketing standpoint.

Roger:  So you'd support me on this?

Pepper:  Absolutely.

Lois:  What in the name of J. Peterman is going on here?

Meredith:  We're not going to do that. Period.

Lois:  Well based on what they are saying, they don't really need you to do this, do they?

Meredith:  What?

Lois:  They can find a printer and a targeting vendor and they can just do this. They don't need you, and they certainly don't need your permission.

Meredith:  Of course they need me.

Lois:  They don't need you.

Meredith:  Who is going to curate the assortment for the customer?

Roger:  Nobody.

Meredith:  You have to curate the assortment. You have to tell the customer what to buy.

Roger:  Go ahead and do that with your monthly catalogs and Pepper and I will dynamically create twenty-eight unique, personalized pieces for individual customers who are on the plus-side of the Bifurcation equation. You'd do this, right Pepper?

Pepper:  Yes.

Meredith:  Oh knock it off.

Lois:  And there's nothing you can do to stop it Meredith.

Meredith:  Oh there's something I can do to stop it. I just need time to think.

Roger:  Can we meet later to talk about what could be done, Pepper?

Pepper:  Yeah.

Lois:  This is interesting, because it's really a marketing issue. It's not a merchandising issue. It's a power shift in how catalog marketing is executed.

Meredith:  Oh shut up Lois.

Lois:  What?

Meredith:  Nothing.

Yacht Rock

At a recent conference, I mentioned that those who worship at the altar of metrics squeezed all of the creativity out of businesses over the past decade. Well, not all of it of course, but way, way, waaaaaaay too much of it.

Creativity matters. And those who initiate creativity may not get compensated, but somebody will get compensated.

Nearly 15 years ago a group of guys created a web series called "Yacht Rock" (click here). These folks, led by J.D. Ryznar and Hunter Stair, noticed that there were a lot of "smooth" songs between 1976 and 1984. By reading the liner notes associated with various albums, they "connected the dots" ... a lot of the music at the time was connected to Michael McDonald, Kenny Loggins, various members of Toto, Steely Dan, and a handful of musicians. These folks collaborated, creating their own sound.

You can read an oral history of Yacht Rock here.

A decade later, SiriusXM created their own version of the channel, also called "Yacht Rock". They kept "many" of the core songs that Ryznar/Stair deemed worthy of being on the boat, but they added their own songs to create a broader playlist that might be commercially acceptable. Of course, Ryznar/Stair weren't fans of what SiriusXM did, and who could blame them?

But when you make elements of the original theme available to 30,000,000 subscribers, you might evangelize your version of the genre, right? And then SiriusXM invited people like Bill Simmons to DJ last year, and he offered his "rules" for the genre, which were instantly mocked by Ryznar/Stair (given that they invented the genre and here was this sports guy telling the world what the rules were/are). 

They'd created a genre and lost control of the script.

I was in the UK a month ago, and the BBC televised a special about "Yacht Rock", including songs that were from the mid-80s and had absolutely nothing to do with the original theme (click here). Duran Duran isn't connected to the Southern California collaboration environment of the mid-70s, but who's to stop the BBC from deviating from what Ryznar/Stair created?

Amazon has their version (click here).

Spotify has a version (click here).

Ryznar/Stair have their "Certified Playlist" on Spotify (click here).

But the cat is out of the bag, there's no going back to their original playlist. It's over. Bigger, more powerful forces take the genre in the directions they want to take it in, in an effort to commercialize/monetize it.

How much did Ryznar/Stair make for ultimately creating a movement? Virtually nothing.

And how much do all of these playlists resemble the "Certified Playlist"??  Somewhat. But frequently they've diverged to the various interests of those curating the new playlists.

So it is with modern catalog marketing. There was what catalog marketing was, and there's what catalog marketing has become. Those in the industry remember what it was, and still try to promote "what it was". What did catalog marketing become? Amazon. Big box e-commerce, Stitch Fix. Not the catalog part, but everything else about direct-to-consumer. It's now fundamentally different, frequently unrecognizable. And the modern folks, the Amazons and big-box e-commerce purveyors and the Stitch Fix's of the world get all the credit.

Times change, and the world evolves, not in a fair manner, and not in a linear manner.

But the fun part is in trying to create something new. Maybe the evolution of your business will set sail in a new direction. Maybe you'll create your own version of Yacht Rock. Just don't expect others to request permission to come aboard.

Moving The Goal Posts

Sometimes "brands" have a problem working with third parties.

Say you sell a product and/or service that Google isn't fond of (or you sell a product/service that borders on being unethical, or is addictive). Google might require approval of your digital advertising strategy before allowing their users to see the ad.

If the rules are consistent and make sense to the "brand" and to the customer, there isn't a lot of consternation.

Sometimes the vendor moves the goal posts. The vendor had rules, the vendor applied the rules consistently, and then the vendor decided to change the rules (i.e. moving the goal posts). Facebook comes to mind. They hooked you on free advertising ... and once you moved the majority of your customers to Facebook, Facebook moved the goal posts and eliminated the vast majority of organic reach and as a consequence you had to pay to speak to your own customers.

These days, it's not uncommon to see goal posts move in all industries. Even in traditional / old-school catalog marketing, where not much ever changes, goal posts occasionally move.

If the vendor changes the rules, if the vendor moves the goal posts, have a checklist ready to evaluate the vendor.

• Is the vendor being honest? In other words, can you understand what the vendor is trying to accomplish? If the vendor uses language like "In the spirit of consumer privacy in the era of the connected customer", the vendor is not being honest with you. That's bad.
• Is the vendor being consistent? Are you required to follow the rules but a competitor is not required to follow the rules? If the answer is "no, the vendor is not being consistent, and that's bad.
• Is the vendor taking control over your brand? If your creative team develops something that is brand appropriate and a 3rd party vendor says "no, you can't use that imagery and/or promotional offer", that's bad. 
• Does the vendor insert itself unnaturally into your process with other 3rd party vendors? If the answer is "yes", that's bad (i.e. you have a calendar where you and six other vendors are cooperating and the vendor creates new rules that require all six vendors and your in-house employees to change everything to accommodate the vendor).

If the answer to any of the checklist items results in a "THAT'S BAD" outcome, you really have two cards to play.

1. Demand that the vendor adhere to the rules established prior to the change made by the vendor.
2. If the vendor says "no", stop working with the vendor.

You're probably going to end up in a situation where the answer is "STOP WORKING WITH THE VENDOR". Now it's up to you. Are you going to repeat the mistakes you made with Facebook and let the vendor take a piece of your business (either via money or institutional control over your brand) ... or are you going to do what is right for your brand?

Do what is right for your brand.

Short-Term vs. Long-Term

Another reason you calculate profit ... profit allows you to understand the tradeoff between short-term profit and long-term profit.

You should calculate profit per new customer. Right? Right??

Say you acquire 10,000 new customers and you lost $24,000 doing so. Your profit per new customer is ($24,000) / 10,000 = ($2.40). You lost $2.40 to acquire each new customer.

Ok, now you probably calculate lifetime value (or some derivation of it) ... right? Right?? Let's assume you calculate LTV. You know that the customer delivers $11.88 profit in year one on the file.

You lost $2.40 acquiring the customer.

You generate $11.88 within just a year.

Yup, that's a good decision. You want to do MORE of this, don't you? You want to ask your CFO for more money, because the short-term loss is actually a long-term profit.

Then you execute your plan and sales increase by 10% ... all because of YOU ... because you calculated profit. Everybody in the company benefits, Management earns a healthy bonus, and it's all because of YOU.

Yes ... YOU!

Calculate this stuff, ok? It's like printing money as far as future career salary potential is concerned.

An Example

Say you manage a paid search program. Last month you spent $100,000 and the following happened.

• Cost = $100,000.
• Clicks = 200,000.
• Conversion Rate = 1.9%.
• AOV = $100.
• Profit Factor = 45%.

We have enough information to calculate profit, don't we?

• Profit = 200,000 * 0.019 * $100 * 0.45 - $100,000 = $71,000.

You did a good job, didn't you??

The program you inherited performed as follows:

• Cost = $100,000.
• Clicks = 200,000.
• Conversion Rate = 1.3%.
• AOV = $85.
• Profit Factor = 45%.

Profit = ($550).

Why do you calculate profit?

Well, you just made your company an incremental $71,550. Your company can do several different things with the money.

1. Pocket it.
2. Re-Invest it in marketing activities.
3. You can lobby for an entry-level marketing staffer to help you find more opportunities to make money, giving you the opportunity to be more strategic which causes your company to make more money.

Profit allows you to easily determine your value to your company. I inherited a hot mess of a marketing team at Nordstrom in 2001 ... a year later when we demonstrated we generated an incremental $9,000,000 of profit we were able to get the resources we needed to be successful. All because we calculated the profitability of our efforts.

Calculate profit, ok?

Profit

Two weeks ago I ran a poll on Twitter, asking if users calculated the profitability of their marketing efforts.

32% said "no".

Months ago I asked a comparable question and a follower said that it was stupid to calculate profit.

Last month, a Professional told me that he didn't have a problem losing money.

Let's switch the story a bit. Many readers live in New England. What if I told you that the NFL wasn't going to keep score anymore ... if the Patriots beat the Jets 31-14 you wouldn't know it, you'd just have rushing stats and passing stats and time of possession and turnovers and your job would be to determine if the Patriots did a good job or not? You'd find that foolish, wouldn't you? You'd want to know the score!!!

Profit in Business = Keeping Score in Sports.

If you don't know how to calculate profit, go sit down with somebody in your Finance Department and learn, ok? Someday you are going to run a company and your job will 100% depend on profitability. Better to get started today so that you're ready when you are a CEO/Owner, right?