Customer Life Cycle Matters

This is one of my favorite tables in the "Hillstrom's Pricing" booklet.

In the table, I look at share of annual demand that is attributed to various attributes. 

Look at the most loyal customers ... those with 26+ life-to-date orders. They like items $0.01 to $9.99 more than any other segment ... and this is a pricing segment that the brand being studied is vacating. In other words, the most loyal customers are being starved of the merchandise they like.

Look at the "Above Average Item Price" and "Below Average Item Price" rows. First-time buyers spend 76% of their volume on items priced at/above the average price for a specific item. However, the most loyal customers spend 64% of their volume on items priced at/above the average price for a specific item. In other words, the most loyal customers either know how to look for bargains, or are being given bargains. Either way, this probably isn't a good dynamic.

Look at the "% New Merchandise" row. First-time buyers spend 35% of their volume on new items (new in the past year). The most loyal buyers spend 51% of their volume on new items. In other words, newbies are attracted to stuff that has always worked, while loyal customers want a fresher assortment.

In a pricing project, I can easily set up new/existing preference variables ... so that you can target customers appropriately. When a loyal customer visits the website, show the loyal customer something fresh and interesting (and likely, something at a low cost).

Hillstrom's Pricing.

• $8,500 through 12/31/2019, $12,000 thereafter.
• Included FREE when you purchase a TOTAL PACKAGE PROJECT.

Vacating Price Point Bands

This is one of the most interesting findings of the past 12-18 months.

In my project work, it is common to see companies vacating low price point bands, in an effort to increase gross margins (and, theoretically, become more profitable).

Look at annual spend per customer ... it was $108.97 back in 2016, it is $96.80 today. The customer is spending $12 less per year ... not good!

Now let's look at where the shortfall comes from.

• Items $0.01 to $9.99 = down $6.60.
• Items $10.00 to $19.99 = down $2.00.
• Items $20.00 to $49.99 (combined) = down $3.70.

The company is clearly vacating items under $50, and is paying the price (from a top-line standpoint).

#OhBoy

But not all is lost ... if the brand knows that some customers prefer the lowest pricing bands, it's easy enough to "show" those customers what is still being sold in low price point bands. Just personalize email, print, and home/landing pages for those specific customers with specific pricing preferences.

This analysis is one of many included in "Hillstrom's Pricing".

• Project Cost through 12/31/2019 = $8,500.
• Project Cost on/after 1/1/2020 = $12,000.
• Pricing Project is added FREE when you purchase a TOTAL PACKAGE PROJECT.
• Click here for additional details.

Online Personalization

Here's a common problem. Your brand needs to increase prices on new items in an effort to increase gross margins. However, your customers are conditioned to buy low-price items. So when you offer marginally more expensive new items, customers rebuke your effort.

There are workarounds.

In a typical pricing project, I create what I call "targeting variables". The variables are used to help the marketer side-step key issues. Here are the most common variables I generate.

• Primary Merchandise Category Preference.
• Secondary Merchandise Category Preference.
• Primary Marketing Channel Preference.
• Secondary Marketing Channel Preference.
• Preferred Pricing Tier (Low Price, Medium Price, High Price).
• Does the Customer Typically Purchase Items Below the Average Historical Price Point for that Item?
• Customer Quality (A, B, C, D, F, New Last Year, Lapsed).

Here's a good way to sidestep pricing issues. You have a visitor to your website. The visitor is a high quality visitor ("A"), the customer prefers Mens Socks first and Mens Pants second. The customer typically orders Online via Search, and Online via Catalogs second. The customer prefers Low Price pricing tiers. The customer, however, likes to buy items at or Above the average historical price point for the item (i.e. the customer doesn't wait for discounts on the item and doesn't buy via liquidation/clearance). Armed with this information, you can "show" the customer items that are inexpensive within Mens Socks and Mens Pants, items that are being sold at full price.

Just personalize the experience for that individual customer.

Right?

That's a decent outcome ... one you can expect to generate when you buy your "Hillstrom's Pricing" project.

• Cost Through 12/31/2019 = $8,500.
• Cost On or After 1/1/2020 = $12,000.
• A Pricing Project is included FREE when you purchase Hillstrom's Total Package.

Honestly, the project cost is virtually free. What would stop you from getting started??

Targeting Variables

It's one thing to point out that you have a pricing problem. It's another thing for marketers to leverage the information and generate positive ROI from the data.

In pricing projects I develop what I call "targeting variables". The variables are stored in your database, and are available for use at any time.

• Low / Medium / High Price Point Preference.
• Purchases Items Above / Below Normal Price Point For The Individual Item.
• Buys Winners or Contending Items.
• Primary Merchandise Category Preference and Secondary Merchandise Category Preference.
• Primary Marketing Channel Preference and Secondary Merchandise Category Preference.

Now, let's say that you are L.L. Bean and your merchants want to clear out a Sweater Fleece Coat. As a marketer, how can you help?

• Identify customers with a primary or secondary marketing channel = email marketing.
• Identify customers who purchase from medium / high price points.
• Identify customers who purchase items that sell below their typical average selling price for an individual item.
• Identify customers with a primary or secondary merchandise category = womens coats.
• Send this segment of the database an email campaign featuring the Sweater Fleece Coat.

Just like that you've make pricing data actionable via targeting variables!

Hillstrom's Pricing = $8,500 through December 31 (click here).

Here's How This Is Going To Work

It's come up repeatedly this year. Over and over and over again. A company is struggling, so I run my comp segment tables, and I notice that there isn't a clear merchandising problem.

Then I review results by price point band, and the story changes. I observe a fundamental change in strategy ... I can see a clear point in time when strategy changes (i.e. sales immediately decline within a price band while sales immediately increase within another price band).

I built simple regression equations, and I observed problems ... the price points being vacated were associated with customers most likely to spend money in the future.

I'd share the findings with Management ... and Management would communicate the importance of improving gross margin percentages. My work communicated the importance of improving future gross margin dollars.

So, I wrote a small booklet about the subject. You can buy the booklet here ... $7.99 in print and $2.99 via Kindle ... in other words, practically free. Show me a vendor who gives away their secrets for $2.99 and previously shared the topics for free on a blog.

At this point, you should be asking me an important question:

• "How much does it cost to execute a pricing analysis??"

Here's how this is going to work.

• For the remainder of 2019 the standard pricing analysis will cost a flat fee $8,500. The fee will likely increase in 2020 ... at this time, I'm thinking it will be $12,000 for 2020 and beyond.
• If you hire me for a Total Package project, you will get the standard pricing analysis for free as part of the Total Package project.  Total Package projects cost $15,000 for small brands, and up to $50,000 for brands > $1,000,000,000 in annual sales.
• Click here for details.

So that's a sweet deal, #amirite?

Hop on now - bump me at kevinh@minethatdata.com and get in line with your pricing project before project fees increase on January 1. Let's see if you have a problem that can be understood via pricing issues.

Closing The Store

If you are looking for the perfect scenario when you close a store, then you are looking for something like this.

The store is dying, it becomes unprofitable, the store is closed, and 20% of in-store sales migrate online after the closure. In the end, profitability is restored ... though top-line sales disappear.

When you read about store closures, this is the scenario folks are trying to get to.

Lands' End 10-Q

If you want to see what a business in transition looks like, take a look at the most recent financial filing from Lands' End (click here).