A Customer Development Example

This (amazingly) is now more than fifteen years ago. I've spoken about this often, but seldom in the context of Customer Development.

At Nordstrom, we had our annual Anniversary Sale. From late July to early August, we discounted our new fall assortment by about 20%. We did Christmas-like business in mid-summer. When people talk glowingly about Amazon Prime Day, remember that Amazon largely copied the playbook of Nordstrom.

My team was asked to pick an annual spending level that pre-qualified customers for special Anniversary Sale perks. My team did the work, and determined that $750 was the amount of annual spend that was hard to achieve yet worthy of being rewarded during Anniversary Sale. If the customer spent $750 in a twelve-month period of time, the customer would qualify for an invitation to enter the store a week before the event began. In this invitation, the customer could pre-select merchandise. The merchandise would be held for the customer. On the first day of the sale, the customer walked into the store, picked up the merchandise, and paid for it.

Did this tactic "develop" customers??

Oh my goodness did it develop customers!

We knew that, say, 15% of customers would spend $750 a year or more. The program caused a significant increase in the annual percentage of customers spending more than $750.

We knew that customers who bought during the Anniversary Sale would become even better customers in the future, after controlling for other factors. This Customer Development tactic caused the "invited" customers to spend (if I remember correctly) 17% more than comparable customers spent in prior years. You take a half-million customers and get them to spend $40 more than they'd normally spend and just like that you pocket $20,000,000 in additional sales and $5,000,000 more in annual profit.

But you have to have a compelling event. And an achievable spending level to get to. And you have to have "emotional perks". I worked in a store each year on the first day of the Anniversary Sale, and you should have seen how these customers strutted through the store to pick up their plunder while "the masses" fought for what was left.

I know, you're going to say that this was way back in 2005-2006 and therefore is not relevant in a modern "omnichannel" world. Fine. Then use your brilliance to come up with a modern "omnichannel" customer development event. You can do this!!!!

Customer Development: The Super League

Most of you who are interested in European Soccer/Football were agitated to learn that twelve teams planned to break off from the other 680+ teams and create a Super League (click here).

Within two days the plan imploded as a small number of business leaders quickly realized that hundreds of millions of "customers" hated the idea while Managers of some of the teams came out in favor of the fans over Management.

In e-commerce terms, we know the following.

• Fans = Customers.
• Players = Merchandise.
• Teams = The "Brand".

The Super League chose (poorly) to focus on the "Brand".

Can I tell you a brief story?

Twenty-five years ago I was a huge fan of Jim Brickman and his piano music (click here). My wife bought tickets to see him at the Moore Theater in Seattle ... that evening still stands as one of the favorite evenings of my life!

Over the next five years, things changed. Less piano music. More singing. More partnerships with artists. More radio shows. Eventually I received an email from his marketing folks asking for my opinion about his career path. I said something I regret. Thought I regret it, my comment was honest.

• "I liked Jim Brickman more when he was an artist and less now that he is a brand."

Yeah, that wasn't a nice thing to say.

But as a customer I could sense the shift ... away from being an artist and toward being a brand. We can all sense this shift in our favorite "brands". Stitch Fix was wonderful when it was an $80,000,000 startup and is something different now that it is north of a billion dollars in annual net sales.

The shift can be sensed via our Customer Development metrics. When we run our "Master Sheet", we see that our Welcome Programs stop being as effective (you have a Welcome Program, right?). Customers become less likely to reactivate. They become less likely to migrate to loyal status. We need larger discounts/promotions to convince the customer to buy, trading away profit for valueless Customer Development.

The ill-fated "Super League" is no different. They valued "brands" more than they valued "customers". When customers (and nearly everybody else) rebelled, the "brands" changed their mind.

Not everything in life is about money, dear readers, in spite of what the Thought Leaders want you to believe.

Develop your Customers. Don't take advantage of your Customers.

Strip Mall Office, Customer Development Brilliance

Consultants visit sprawling, modern corporate campuses (pre-COVID). Sometimes we stumble upon beautiful little gems. Other times? Well, you enter a run-down strip mall and your expectations for greatness are reduced. That assumption, my friends, would be a mistake.

This company was a Customer Development powerhouse!

They had unique products for prospects.

Special discounts if a customer purchased for the second time within a few days of receiving a first order.

Marketplace programs with products that cannot be bought via the website.

A subscription-based replenishment program.

A loyalty program with unique product bundles.

Special surprise perks for the absolute best customers.

Customer metrics that you would die for.

In other words, this company was brilliant at Customer Development.

You, too, can be brilliant at Customer Development. As we emerge from COVID into a somewhat vaccinated world, many of you will have an absolute glut of customers that you need to develop. Do not let these customers lapse into oblivion!!

Developing Customers ... and Merchandise

One of the "trick" questions I'm asked is this ... "Who does Customer Development well, and what specifically are they doing to develop customers?"

Why is this a "trick" question? Because of the response I get after I answer the question. After I give a response, I'm frequently told that the answer is a "bad example" or is "not applicable". It's the way that many Professionals make sure that they don't have to change anything ... all they have to do is point out a small flaw in an idea and feel superior.

Sports is a place that develops both customers and merchandise. Sports does this way better than e-commerce does.

In baseball, you have a feeder system of Rookie Ball, Class A (low and high), Class AA, Class AAA, and then the Major Leagues. Aside from the fact that MLB exploits the athletes, paying them at or below minimum wage levels for the hours they put in, the product/merchandise is developed so that by the time the players are at the Major League level, they perform at a HIGH level, causing their play to (theoretically) be more entertaining, causing more fans to want to attend, causing fans to be developed.

NASCAR has a similar system ... Trucks / Xfinity Series / Cup Series. Drivers and teams are developed, so that they are able to perform at a high level when they get to the Cup Series. Fans are developed as well. Why travel to a track to see one race when you could see 2-3 races on any given weekend? NASCAR benefits from the additional fans by generating $40ish additional dollars from 10,000 of the die-hard / most-developed fans.

I know, I know, you're going to tell me that this doesn't matter ... that those are event-based industries and you are selling in an omnichannel manner 24/7/365. 

But why can't you incorporate event-based activities into your tactics? Why can't you do that? And why can't you develop merchandise around those events and develop customers as a consequence?

Why not you?

Out Come The Buzzwords

It's always interesting to hear Customer Development feedback that comes from outside of the Marketing Department.

In one visit, the Information Technology person asked for a list of best practices that could be publicly verified. Sure. Companies love to publicly share their secrets of success. There aren't many articles titled "Here are the eight ways Burger King clobbered the competition, authored by Burger King."

In another visit, the analyst wanted to know if "AI" would be a key component of any solution? That's not a valid question. That's a buzzword embedded in a sentence. The person wouldn't understand what I meant if I said "what do you think of multi-layer perceptrons?" The person just wanted a box checked.

I was asked if solutions were "agile". Enough. Vendors telling you that you need to be quick and adaptive are one thing ... but of what good is it to provide an "agile" solution (whatever that means) that is quick, adaptive, and awful?

Customer Development is a deliberative, contemplative, thoughtful, tactical approach to growing customers from Acquisition to Welcome to Emergence to Loyalty. You don't cheat the process with "AI" or by being "agile". You do the hard work to put the right merchandise in front of the customer.

If a vendor or co-worker starts throwing buzzwords at you when you discuss Customer Development, please redirect the vendor or co-worker.

Frictionless

My plan3 (pre-COVID) lands minutes before a severe thunderstorm absolutely pummels the area. I sat the storm out in a Culver's Restaurant (pork tenderloin sandwich and cheese curds), browsing Customer Development notes for the meeting I would have the next day.

This company had a beautiful lobby. Heck, everything was perfect. And for good reason. This company was (and still is) thriving. I was hired to solve a Customer Development problem, a problem that didn't exist. Annual repurchase rates were north of 70%. Customers loved the retail experience so much that online penetration was sub-standard. This company wanted me to help the move customers from a wonderful in-store experience to an online experience.

The Marketing Executive sits me down, and then approaches the grease board.

With effect, he pulls out a black grease board sharpie and writes one word.

"Frictionless".

For effect, he underlines the word a few times.

Frictionless.

There is a belief that if you just remove "friction" you'll convert customers and as a result you'll be great at Customer Development.

"Friction" becomes a math issue in Customer Development. Which customer would you prefer to have?

1. A customer who visits your site six times in six days before purchasing.
2. A customer who visits your site three times in six days before purchasing.

Hint - you don't care which customer you have, because both customers purchased.

One of the things we don't measure when creating a "frictionless" experience is incrementality. If you remove a step that makes it easier for the customer to purchase but doesn't cause an increase in the number of purchasers, your "frictionless" initiatives are pointless. You improved the customer experience, but you did nothing in terms of Customer Development.

Given the choice, always pick Customer Development over the Customer Experience. You can do a ton of things that don't add up to any incremental purchases.

It Was Cyber Monday

I'm sitting in on the Monday Morning Executive Meeting, on Cyber Monday.

Can I tell you a secret? I detest Cyber Monday.

Cyber Monday is a day where less-qualified professionals cheat at Customer Development. They slap 50% off promotions, watch the sales roll in (regardless whether the sales are profitable or unprofitable), and then battle for the next year as they wonder why so many customers won't purchase unless they're offered 50% off. If Customer Development is the realm of the gifted, Cyber Monday is the realm of the metrics manipulator.

You can tell if a company cares about Customer Development based on how the company behaves on Cyber Monday. As I sat in front of a room full of Executives earning an average of a half-million dollars a year, a meek woman walked into the room and approached the CEO with a slip of paper.

The room became quiet.

The CEO read the slip of paper.

Then the CEO said, "GET GAIL IN HERE".

Poor Gail.

It turns out that a competitor topped the 50% off promo this brand had for Cyber Monday by offering 55% off. The CEO would have none of this nonsense. None of it. 

Poor Gail walks into the room a few seconds later, and was micromanaged into changing email creative within the next ten minutes before launching the promo to the masses. This brand would be at 55% off on Cyber Monday.

Clients that are excellent at Customer Development HAVE A PLAN. They don't act like a child who just ate a Snickers bar only to see another kid with a bag of Kit Kats. They don't deviate in the face of adversity. They persevere. They work hard on their plan. They're not intimidated. Instead, they Lead.

Your Cyber Monday plan tells all of us a lot about how good you are at Customer Development.