How File Power Changes at a Customer Level

Here is a simple "weighting" process from a recent project. The coefficients are created, they're smoothed and modeled, and the outcome is standardized.

Let's take a customer ... purchased via online nine months ago at an AOV of $100. Read across the Recency = 9 row, then read over to the "Adjusted Online Weight" value. That value is 0.375. That's the file power associated with a purchase in that channel nine months ago.

In other words, this customer possesses $100*0.375 = 37.5 points of File Power.

If the customer does not purchase, the customer slumps to Recency = 10. The Adjusted Weight changes to 0.357. The customer now possesses $100*0.357 = 35.7 points of File Power.

The customer is weaker now.

Let's say that the customer purchases via mobile the next month and spends $100. We now have two purchases, and each purchase possesses different file power weights.

• Online Recency = 11 Months, weight = 0.341.
• Mobile Recency = 1 Month, weight = 0.682.

Therefore, File Power changes ... $100*0.341 + $100*0.682 = 102.3 points of File Power.

Remember, File Power is predictive ... it tells us what the future potential of a customer is, and it tells us what the future potential of the business is.

Let's say that instead of the customer buying via mobile the customer buys via your call center. The weights are different, and correspondingly, File Power is different.

• Online Recency = 11 Months, weight = 0.341.
• Call Center Recency = 1 Month, weight = 1.000.
• File Power = 100*0.341 + 100*1.000 = 134.1 points of File Power.

Do you see the difference?

• Pushing the customer to mobile resulted in 102.3 points of File Power.
• Pushing the customer to the call center resulted in 134.1 points of File Power.

This is the challenge that modern marketers face. In so many projects, you maximize File Power by pushing customers to established channels. File Power frequently suffers when customers are pushed into newer channels. 

• Traditional Marketers see this and they dissuade new tactics.
• Careless Marketers don't have the tools to observe this behavior, and they push too fast into newer tactics, harming customer-level File Power.
• Smart Marketers balance both activities ... allowing customer to buy traditionally ... but then managing newer tactics appropriately. In this case, the Smart Marketer would try to generate 1.5 customers via newer tactics to offset the loss of File Power.

Late Stage File Power Issues

Companies in the "late stages" of brand life invariably try to squeeze more value out of a customer file via loyalty initiatives ... they try to increase File Power in an effort to keep the business moving in a positive manner.

Here's a business I evaluated. The business is in "late stage brand life" ... meaning it is struggling in a manner that might be terminal.

End of 2019:

• 474,430 12-Month Buyers.
• Per-Customer Calculated File Power = 94.85.
• Total File Power = 474,430 * 94.85 = 44,999,575.
• Annual Demand = $56,573,998.

End of 2018:

• 507,575 12-Month Buyers.
• Per-Customer Calculated File Power = 88.60.
• Total File Power = 507,575 * 88.60 = 44,969,986.
• Annual Demand = $58,205,734.

End of 2017:

• 523,977 12-Month Buyers.
• Per-Customer Calculated File Power = 84.32.
• Total File Power = 523,977 * 84.32 = 44,183,464.
• Annual Demand = $57,936,264.

The customers who continue to buy from this business have better File Power, don't they?

• 2019 = 94.85 per customer.
• 2018 = 88.60 per customer.
• 2017 = 84.32 per customer.

And yet, top-line volume is not increasing.

• 2019 = $56.6 million.
• 2018 = $58.2 million.
• 2017 = $57.9 million.

Meanwhile, the customer file is shrinking.

• 2019 = 474,430 12-month buyers.
• 2018 = 507,575 12-month buyers.
• 2017 = 523,977 12-month buyers.

This is a classic "late stage brand life" File Power issue. The brand is essentially dying, and Management is responding by squeezing as much volume out of customers as is humanly possible.

Across my project work, clients are capable of improving File Power. But clients struggle with Customer Acquisition and Merchandise Productivity. The result is a stronger customer file that doesn't yield sales gains.

It's Time Again!!

Every February, June, and October I execute a new run of the MineThatData Elite Program.

This is a subscription service where I analyze aspects of customer behavior. In addition to typical high-level Total Package elements like rolling twelve month metrics, comp segment performance, and repurchase / new-reactivated reporting, this run will feature a sampling of File Power information. Specifically, I will analyze if you have done anything to harm File Power over the past two years.

This isn't a full File Power analysis (an analysis that will be revealed soon), but it is a sampling, a glimpse into whether you have done anything to harm or improve File Power. Given what I've heard coming out of Christmas 2019, File Power has changed.

Cost?

• First-Time Participants = $1,800.
• Existing Program Members = $1,000.

I mean, come on, that's almost free!!

Send me an email (kevinh@minethatdata.com) and I'll send you file requirements and an invoice.

• Payment is due by February 15.
• Data is due by February 15.
• Analysis is completed by February 28.
• Five years of data (if possible) ... February 1, 2015 to January 31, 2020.

Let's get busy, ok??

The Third Biggest File Power Story of 2020

Have you ever executed a strategy like this? Business isn't great, and you need new customers and Management demands that you sell something RIGHT NOW or you will be fired. So you do the only thing you can do RIGHT NOW to keep your job.

• 40% Off.
• Free Shipping.

And guess what? Customers purchase something!! Who cares about the p&l implications of what you just caused, you needed to sell something RIGHT NOW or you'd lose your job and there was no way you were going to lose your job, was there?

You could have acquired 100 customers at full price.

You chose to acquire 140 customers at 40% off plus free shipping.

And then something awful happens.

The 140 customers you just acquired won't buy again unless you give them 40% off plus free shipping. Congratulations!!

This is a classic case of File Power Abuse.

You could have expected the following from 100 full-price customers.

• 30% chance of buying next year.
• $100 average spend in the next year.
• 55% gross margin (after subtracting future discounts and shipping +/-).
• File Power = 0.30*$100 = $30 ... Margin = $30*0.55 = $16.50.
• Total File Power Margin = 100 * $16.50 = $1,650.

Instead, you signed up for the following future from 140 discount/promo buyers.

• 33% chance of buying next year.
• $95 average spend in the next year.
• 30% gross margin (after subtracting future discounts and shipping +/-).
• File Power = 0.33*$95 = $31.35 ... Margin = $31.35*0.30 = $9.41.
• Total File Power Margin = 140 * $9.41 = $1,317.

See what you did there?

This is the third biggest File Power story of 2020. We traded our souls. By getting to keep our job RIGHT NOW we made it nearly impossible to have a quality job at the brand we love working for, long-term.

You measure File Power, right?

Right?

The Second Biggest File Power Story of 2020

The second biggest File Power story of 2020 has to do with marketing channels.

Here's what I commonly observe (again, how I calculate "File Power" will be explained later ... focus on the concepts today).

1. Traditional Call-Center Customers have 100% "File Power".
2. Traditional In-Store Shoppers have 100% File Power.
3. Desktop/Laptop E-Commerce Customers have 85% File Power.
4. Mobile fused with Social Customers have 70% File Power.

The ramifications of this finding (your mileage will vary) are driving modern commerce challenges.

You read about mobile having low conversion rates. That's a surface issue ... what I'm talking about is deeper than that. When you convert a customer from e-commerce to mobile, you increase the File Power of the customer with the purchase but you decrease the File Power by causing the customer to switch channels. In the short-term, you get a purchase. In the long-term, you weaken your business.

This is particularly harmful in retail, where you convert the in-store customer to e-commerce, you split future purchases across both channels, and you reduce File Power going forward. This is a huge reason why thousands of stores are closing and brands are going bankrupt. We (Marketers / Management) caused this to happen. We did it to ourselves. We didn't measure File Power, we didn't synthesize what it truly meant, and now we're paying the price for decisions we made years ago.

The themes above come up over and over and over again ... the second biggest File Power story of 2020.

You're measuring File Power, right?

Right?

The Biggest File Power Story of 2020

One of the most popular questions I'm getting is this one ... "What Is Happening To File Power Across Your Client Base?"

This graph represents one of the three biggest File Power stories I'm seeing. For now, don't worry about the numbers on the x-axis, they will be explained in due time. Instead, think about the concept illustrated in the graph.

For this brand, the twelve-month customer file is contracting ... contracting at an alarming rate. This is a common trend these days.

Also common is the "File Power" of those who are buying ... File Power is increasing. Think of File Power as a parallel to "Lifetime Value" ... it is a metric that tells us how strong a customer is likely to be, moving forward.

In the example above, the file gets smaller every single day ... but as it gets smaller, the customers who are still buying have increased File Power. In other words, the infrequent and low-quality customers are disappearing.

This is soooooooooooo common in my project work in the past year. One might theorize that Amazon is scooping up the infrequent buyers. One might theorize that increased prices result in fewer customers. In retail, one might theorize that reduced mall traffic among infrequent buyers yields this outcome. Others might guess that Google/Facebook are redirecting traffic to the parties they prefer.

The reason doesn't matter.

This relationship is frequently a "late stage indicator" of an unhealthy brand.

And if you don't measure File Power, you don't know if this is happening or not.

What's Coming Over The Next Few Weeks?

You might remember the ad cost simulation I discussed in December.

And you likely remember the past 1-2 weeks, where I've initiated a discussion about what I call File Power.

Both are interrelated.

When you craft a loyalty program, you are trying to increase File Power. You are trading margin dollars for customers.

When you send an email message ... five a week at times ... you are trying to increase File Power. You are trading content for customers.

When you cultivate an Instagram presence, you are trying to increase File Power. You are trading content for prospects, prospects that become customers.

All of this information can be translated into File Power. We can fully measure File Power, we can act upon File Power in a targeted manner, and we can simulate long-term profit/loss based on short-term marketing decisions.

What comes over the next few weeks is an exploration of what goes into File Power. I'll take it slow, I'll keep the geeky math contained to one long post that you can make a TL:DR (too long - don't read) reference to, and then I'll head more into actionable outcomes.

After exploring the concepts, I'll boil this down to a product that is likely to cost in the $24,000 - $25,000 range. And that will be a bargain.

What's in it for you? Well, if you want a significant cost reduction and you want to be part of the prototyping process, send me an email (kevinh@minethatdata.com) and for $9,000 I'll use the code I've prototyped on your data. You save a ton of money. What's not to like about that?

Tomorrow I begin the process of explaining the requests I've been getting in the past six months, explaining how those requests all translate to the concept of File Power.