May 28, 2008

Great Moments In Database Marketing #7: S&P 500

Back in 2001, I was brought in to help change the trajectory of Nordstrom Direct. The direct-to-consumer arm of Nordstrom struggled through another amazingly unprofitable year in 2000. A host of former Lands' End leaders partnered with in-house talent, tasked with turning things around.

The business began to crater in November 2000, with performance hitting rock bottom in Spring 2001. By September 11, any glimmer of hope was shattered by the events of the day. Soon thereafter, the focus shifted to enabling donation buttons for the Red Cross, and to anthrax in the mail system.

Our President was a plucky data hound named Mike Smith, current leader of Bag, Borrow or Steal. Mr. Smith felt that any problem could be solved by analyzing customer information. Mr. Smith charged me with figuring out "what was wrong with business".

Business is influenced by multiple factors. You self-inflict damage with the dumb things you do to yourself. Your competitors inflict damage with their strategies. And the economy can inflict damage.

You might recall that 2000 - 2001 was known as the "dot com bubble". Surprisingly, these bubbles just keep on happening!

I was able to develop a non-linear set of equations that correlated changes in the S&P 500 with changes in Nordstrom Direct sales performance. In fact, the equations explained sixty percent of the shortfall in business.

Not easily impressed by answers that fail to immediately fix the business, Mr. Smith panned the analysis. It is the responsibility of business leaders to improve business today, so the response was directionally appropriate.

But that doesn't mean you stop quantifying the impact external factors play in the trajectory of your business. Mired in yet another self-inflicted bubble, a business leader might want to know when we're "about to pull out of this mess". Pundits chattering on CNN probably won't give you the information you need.

So build relationships that correlate economic factors with changes in business performance. Use the equations as a forward-looking indicator to tell you when you're ready to pull out of an economic slump. Understand how much of the damage is created by the economy, and understand how much is self-inflicted.

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