Welcome to the Gliebers Dresses Executive meeting.
Glen Glieber (Owner): "... but these kids don't know the difference between an SCF and a KPI, instead, they're all about PPC! They're simply not aware of the fundamentals anymore. Meredith, you remember Stu Bletsky, don't you? Oh, he was a trail-blazer. He was one of the first ones to make the "two for" strategy work ... you know, you have a dress for $59, and he'd offer you two for $99. Or what about Art Popper and Mildred Rosen, and the things they did to advance catalog pagination? They studied every single spread in a catalog, trying to find the right combination of presentation and copy. Those folks, they really knew their stuff. Oh, the good times we all had."
Meredith Thompson (Merchandising): "Kevin, is that you?"
Kevin: "Yup, it's me!"
Meredith Thompson: "Ok, Kevin, we've got a few questions for you today, and we're glad you here to help, now that Sarah Wheldon is telling all of our trade secrets to Anna Carter."
Pepper Morgan (Interim Chief Merchandising Officer): "Here we go. Kevin, what reporting should I be looking at, to understand business performance?"
Kevin: "What do you mean?"
Roger Morgan (Chief Operations Officer): "Let's just look at online demand for the month of June. In our order entry system, that's the system I use, it says we generated $4,000,000 of online demand online during the month of June."
Pepper Morgan: "But in the customer database, it says we generated $3,725,000 demand in the online channel during the month of June."
Meredith Thompson: "That's because the customer database subtracts canceled orders. My merchandising system says the online demand total for June is $4,125,000. Our number is probably right because we included canceled orders for demand forecasting purposes, and we include employee orders, whereas the order entry system doesn't include employee orders."
Pepper Morgan: "But if you are analyzing true customer performance, you want to exclude employee orders, right?"
Candi Layton (Chief Customer Officer): "No, you need to keep employee orders in the database, because eventually people like Sarah Wheldon aren't employees, and then you need to analyze former employees just like they were customers."
Meredith Thompson: "Well, I need to forecast employee orders, because I have to have enough inventory for them. And then employee orders screw up my gross margin numbers, because if too many employees order merchandise at a discount, then my gross margin numbers are lower."
Lois Gladstone (Chief Financial Officer): "Our systems report a different gross margin number than do the merchandising systems, because we like to plug all marketing discounts into the cost of goods sold. We usually don't do discounts unless we're having a problem selling the merchandise, so the discounts are truly part of the gross margin metric. And we don't care about demand in finance, we really only care about net sales."
Meredith Thompson: "My merchandising systems care about demand, because we have to forecast the right number of units sold, then we have to forecast returns too. We have to have both metrics to do our job right."
Pepper Morgan: "And in Marketing, Sarah always had marketing discounts as a line item in her profit and loss statement, so that she could see the impact of the discounts as a percentage of advertising expense."
Roger Morgan: "When we offer discounts and promotions in the call center, like if a customer is really mad at us and we want to give her free shipping, we just pick up one of the old marketing promotions and use that code. Sure, that taints the reporting marketing looks at, but it does make the customer happy."
Candi Layton: "It is important to keep the customer happy, so I support that."
Pepper Morgan: "Then how do I truly know if my marketing promotions are working, or if operations is artificially inflating the total?"
Lois Gladstone: "Can't we just buy one of those off-the-shelf ERP or CRM or BI or MRM or SAP systems, and then the system will just know how to categorize everything for us? I'd really like to see every employee using the same point-and-click system to get the same metrics, you know, have everybody speaking off of the same page?"
Roger Morgan: "Oh, that's a really big project. I think we'd have to put that one on the book of work and prioritize it against all of the other initiatives. And it is expensive, too. We're really in a situation here where we are simply filling potholes. Let's look at the big picture, folks. When we're profitable, then we can think about tacking a project of this scale."
Pepper Morgan: "We also have our web analytics tool. That tool tells us that we generated $3,200,000 online during the month of June, why is that number so different?"
Roger Morgan: "We know why that number is different. The web analytics tool only captures about 80% of the sales transactions. It's a level of error that our web analytics vendor says we can feel comfortable using."
Lois Gladstone: "So does that mean that our conversion rate is truly 8%, or is it better because we're missing 20% of the transactions? Is our conversion rate actually 9% or 10%? And how about all of the other metrics that Bow Tie Guy quotes from our website, can we trust any of them if 20% of the purchase transactions are missing? Is our shopping cart abandonment metric truly bad, or is it just fine? Do customers truly drill deep into the site, or do they only look at the home page? How does this impact all of the other metrics?"
Roger Morgan: "Our web analytics vendor suggests that we should triangulate our metrics. In other words, if the web analytics tool says we generated $3.2 million and our order entry system says $4.0 million and our customer database says $3.7 million and our merchandising systems say $4.1 million, we're supposed to kind of focus on $3.7 million as an average, and then adjust all of the other systems accordingly. It's not that hard, really. And then don't get me started on cookie death. We're always losing data in the web analytics system because cookies disappear or computers are thrown out of windows or users delete their cookies or whatever the reason is. So we're constantly assigning new cookies, and that really mucks up our new customer vs. existing customer online reporting. But our vendor tells us that everybody else deals with this issue, so we can trust the numbers as being as accurate as they can be, given the current state of technology."
Meredith Thompson: "You also have the concept of demand, you know, being different online vs. on the telephone. If an item isn't available in the catalog, we record it as demand in the telephone channel. Online, we pull the item off the site if it isn't available, and as a result, we don't record that the customer ever wanted to buy the item. As the mix of demand shifted over the past decade to the online channel, this has really helped us achieve a much better final fulfillment rate, and ultimately, better bonuses for my employees!"
Pepper Morgan: "Kevin?"
Kevin: "My personal belief is that you have different metrics for different reasons. However, I believe that there should be one set of metrics that are communicated to every employee in the company. Those metrics are shared between the finance department and the marketing department. Demand, initial fulfillment, final fulfillment, returns, gross margin, promotional discounts, orders, advertising expense, all of those metrics are basically owned by finance. Marketing is responsible for communicating customer metrics like repurchase rates, orders per customer, items per order, discount dollars per customer, average order value. Marketing and Finance work together to make sure that metrics tie out. Operations/IT is responsible for implementing all systems related improvements to make sure that Marketing and Finance are in sync."
Roger Morgan: "Do you really believe that Finance owns metrics? That seems like something that I should own."
Kevin: "I like to see metrics development as a collaboration between marketing and finance, because finance is responsible for publicly publishing profit and loss information. Almost nobody ever questions the metrics in the profit and loss statement. And the profit and loss statement is influenced by marketing, so there has to be collaboration between the two parties. Information Technology needs to support the two systems, and assist in selection and implementation of the appropriate software tools and dashboard platforms. Marketing leads the implementation, because marketing owns the customer, and most of the data at the core of the company is customer related. Information Technology owns the data schemas necessary to link merchandising, finance, marketing, web analytics, and operations. Information Technology never forces metrics upon employees. Marketing is responsible for determining the customer metrics that are communicated to all employees."
Roger Morgan: "Oh, I don't agree with that at all. My information technology team can come up with some really innovative metrics. I think marketing should just execute promotions and send catalogs and e-mails to customers. I'd rather see the people who know the data the best, the information technology folks, spend time analyzing the data and sharing what the metrics say."
Pepper Morgan: "Bow Tie Guy is responsible for all of the customer reporting. Are you suggesting that your team is better equipped than he is at analyzing and communicating customer metrics to the company?"
Roger Morgan: "Absolutely. I'm sure he's good, don't get me wrong. But he's not a trained information technology leader. My employees are in a different pay grade for a reason, they're more talented and their skills are more in-demand than the typical marketing geek. It's simple economics, really. And honestly, when people have ad-hoc requests, they come to me, and my team runs the ad-hoc customer queries for them. Just last week, I ran a query for finance, and told them that the average customer has 1.7 purchases over the past five years in the customer database."
Pepper Morgan: "You mean those requests don't go on the book of work? And what the heck are you doing? Kevin told us that the average twelve-month buyer purchases about twice a year. So what is the context around 1.7 purchases?"
Roger Morgan: "Oh, well, we didn't look at just the last twelve months. We wanted to give finance a 'holistic' view of the customer, using data for the past five years. I don't think twelve months is the right timeframe to analyze customer behavior."
Candi Layton: "Seems to me that you'd want to look at at least two years of data, so that you could get a little trending, but you wouldn't want five years, because our business really changed over the past five years."
Lois Gladstone: "I like three years of data, that causes us to look at data at the peak of the housing bubble through now, rock bottom. That makes for a good representation of history, in my opinion."
Kevin: "Well, you've articulated the issues, and you've gotten a lot of points of view out on the table. It is my opinion that Finance own all metrics related to the profit and loss statement, while Marketing owns all customer related metrics and advertising related metrics. It is the job of Information Technology to implement the wishes of Finance and Marketing. It is the job of everybody else to trust those accountable for the three areas I outlined. Nobody tells finance how to calculate profit. Nobody tells information technology folks what software tools they should use. Similarly, other departments could better support marketing when marketing reports on customer behavior."
Glenn Glieber: "Another stimulating discussion, folks. It's all part of being a matrixed organization with shared accountability. Matrixed organizations are what multichannel brands are all about --- no silos here! Now, on to the next topic on the agenda. Penny Crandall down in inventory management wants to see us implement a series of landing pages that better support sales of the merchandise she is responsible for."
Pepper Morgan: "That's probably something I can work with her on."
Meredith Thompson: "Shouldn't merchandising have input on this issue?"
Roger Morgan: "Well, I'm responsible for the website, so maybe we're better off having my team work with Penny on that topic."
Helping CEOs Understand How Customers Interact With Advertising, Products, Brands, and Channels
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"My personal belief is that you have different metrics for different reasons. However, I believe that there should be one set of metrics that are communicated to every employee in the company."
ReplyDeleteKevin - this was a great blog piece and we feel strongly about your comment above as well. Thanks for sharing this as there is a lot that can be gleaned.