Kevin Hillstrom: MineThatData
Helping CEOs Understand How Customers Interact With Advertising, Products, Brands, and Channels
March 23, 2023
The DTC Index - And Giving Away Free Information
March 22, 2023
An Interconnected Business
We've talked about your Category Development situation as being similar to a solar system ... you have a Star, you have Planets that rotate around the Star, you have Moons that rotate around Planets, you have Asteroid Belts (broken categories), and you have Comets that infrequently interact with your solar system (i.e. Gifts at Christmas).
In other words, your business is interconnected.
And when you fail in one category, you impact other categories.
If your Star category struggles, the struggles spill over into all other categories.
If a Planet category struggles, the Moons will struggle.
If a Comet category struggles? Meh.
But make no mistake. Your business is interconnected, and you are doing things that greatly help or hurt other categories.
March 21, 2023
Price / Customer Tradeoff
When you are developing categories, you likely look at your cost of goods and determine a price that (theoretically) delivers enough profit to fuel your business into the future.
On average (your mileage will vary), when prices increase, customers decrease. The goal (on the surface) is to increase sales as prices increase ... you trade off a few customers but the math all works out.
Here's what you are hoping to accomplish.
- Last Year = 1,000 customers buying 1.4 units per customer at $50 each = $70,000.
- Next Year = 800 customers buying 1.3 units per customer at $70 each = $72,800.
- Sales Increase = 4%.
March 20, 2023
Three Ways To Grow
Rank-ordered by what you read about from the experts.
- Get more sales from loyal buyers.
- Acquire new customers.
- Manage your merchandise assortment properly.
- Manage your merchandise assortment properly.
- Acquire new customers.
- Get more sales from loyal buyers.
March 19, 2023
How Many New Items?
Ok, here's our table.
There is a relationship hidden in the table.
- 594 items = $8.0 million in new item sales.
- 235 items = $3.9 million in new item sales.
- 579 items = $9.5 million in new item sales.
- 603 items = $8.7 million in new item sales.
Here we have our friendly law of diminishing returns ... it appears practically everywhere once you know how to look for it.
March 16, 2023
What Harms You Today Harms You Tomorrow
We learned yesterday that the Class Of 3/10/2021 was too small, and didn't generate enough sales, costing this business five million dollars in the year ending 3/10/2021.
Did you notice that the business never recovers from this problem?
New items recover quickly. Somebody noticed that the merchants nuked the business, and as a consequence new items perform at $9.5 million the following year ... recovering by about $5.5 million dollars. However, the total business does not recover ... sales increase by a paltry $0.4 million.
How can that be?
Two things are happening here.
First ... new items today become existing items tomorrow. Read across the year ending 3/10/2021 row. $3.9 million in year one becomes just $2.6 million in year two. In the class of 3/10/2020, $8.0 million in year one becomes $5.7 million in year two. In other words, this brand loses $5.7 million - $2.6 million = $3.1 million in sales in the second year because the merchants failed the year prior.
Each merchandise class has a "life" ... and if you don't have enough new items one year you won't have enough existing items the following year.
That's the first issue.
The second issue? This is a completely different issue. Look at the top row. These are older items, items that have been around for more than four years. Look at how sales drop off year-over-year. These items gave up $6.6 million in the year ending 3/10/2020, they gave up $6.8 million in the year ending 3/10/2021, they gave up $5.6 million in the year ending 3/10/2022, and they gave up $3.0 million in the year ending 3/10/2023.
In other words, items at this company have a moderate life cycle (in terms of length), and each year you need to come up with enough new items to cover the losses you experience from long-term existing items. If you don't generate enough new items, you hurt your new item performance AND you fail to compensate for items that are aging.
You can use this analysis technique to measure how many new items you "might" need next year to protect the future of your business. When you know the decay rate of existing items you can back into how many new items you likely need to keep your business moving forward.
March 15, 2023
Problem Spotted!
Back to our table:
Look at the row titled "New Through Year Ending 3/10/2021".
That "class" had just 235 new items, compared to 594/579 in the years before/after it.
This merchandise class was small, and it did not generate sufficient sales. In the first year, this "class" generated $3.9 million in sales, a lot less than the years before/after it ($8.0 million, $9.5 million).
Look at total sales for the year ending 3/10/2021 ... there is a five million dollar top-line hit compared to the year prior.
This business was nuked by a merchandising team that failed to give proper importance to finding new items that work. Some might say "well, we had supply chain issues" and sure, that's a problem. But it doesn't solve the problem of the business being harmed.
Notice that this business doesn't recover, with sales down for each of the two subsequent years. More on this topic tomorrow.
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