Merchandise Forensics: When Merchandise Is Purchased

It's important to understand "when" merchandise is purchased in the customer life cycle.


Here's an example.  On a recent project, we learned that two merchandise divisions move in opposite directions.


One merchandise division performed like this:

• 1st Order = 16% of demand.
• 2nd Order = 19% of demand.
• 3rd Order = 21% of demand.
• 4th Order = 23% of demand.
• 5th Order = 24% of demand.
• 6th - 10th Order = 28% of demand.
• 11th - 15th Order = 34% of demand.
• 16th - 25th Order = 33% of demand.
• 26th+ Order = 27% of demand.

Another important merchandise division performed like this:

• 1st Order = 14% of demand.
• 2nd Order = 13% of demand.
• 3rd Order = 13% of demand.
• 4th Order = 12% of demand.
• 5th Order = 11% of demand.
• 6th - 10th Order = 10% of demand.
• 11th - 15th Order = 9% of demand.
• 16th - 25th Order = 7% of demand.
• 26th+ Order = 5% of demand.

Now, if you want to optimize performance, you have a series of tactics to employ.

1. Prospect catalogs that feature the second merchandise division.
2. Best customer catalogs that feature the first merchandise division.
3. Email campaigns that feature the first merchandise division.

This data is aggregated and smoothed out and nearly impossible to notice within most of our reporting systems.  Honestly, it's a simple query, one that can be run in about two minutes, with 30 lines of programming code.

So go have your measurement guru run the query for you, and see what you can learn about when customers purchase merchandise.

Showrooming Example: Logitech and Best Buy

It's trendy to think that everybody is standing in stores, reviewing merchandise, then using mobile devices to check prices.  Immediately after checking prices, the customer walks out of the store to hurry home and buy a comparable item online ... or worse, to magically buy via a mobile device from a competitor while standing in a store.


But this logic is mudheaded, for the simple reason that the customer has no reason to even bother with showrooming when prices are comparable.


Example: 

• I was going to buy a Logitech Squeezebox (click here).  Yup, I've seen the item a couple dozen times in nearby Best Buy store ... so when my old Grace Wi-Fi radio started acting funky, it was time to upgrade.  On Logitech's website, the item sells for $179.99.
• Best Buy also offers the item for $179.99 (click here).  I can get free shipping, but of course, I'll pay 8% sales tax, so the net price is going to be around $194.00.  And, I can tack on a four year protection plan for just $34.99, if I so desire.
• Or I can visit Amazon.com, where guess what?  I can buy the item via a third party (Tiger Direct) for ... are you ready for this ... $139.99 (click here)!!  With no sales tax and $7.50 shipping and handling, I'll only spend $147.49.

Here's a quick poll for loyal readers of The MineThatData Blog.  Which price would you prefer to pay for this item?

• Choice A = $194.00.
• Choice B = $147.49.

This is a common-sense pricing issue.  Common-sense pricing issues have been around for thousands of years.


Simply put:

• Logitech + Tiger Direct + Amazon Vendor Relationships > Logitech + Best Buy Vendor Relationships.

In other words, somebody at Best Buy is unable to negotiate contracts with Logitech that are as price friendly as the people at Tiger Direct, who seemingly get better pricing from Logitech and then negotiate a good deal with Amazon.  I mean, do we really believe that Best Buy is so dumb that nobody at Best Buy ever asked Logitech for permission to have price parity with online brands?

In one case, three companies take home $10 each from younger customers who are price sensitive... in the other case, two companies take home $35 each from older customers who do not use technology to compare prices.

There are four companies involved in this comparison.

1. Logitech.
2. Tiger Direct.
3. Amazon.
4. Best Buy.

Only one of the companies is being run into the ground, and Logitech is helping dig the grave.

This is not a showrooming issue.

This is an issue of offline/online price negotiations between vendors, causing customers to exhibit behavior that makes sure the customer isn't ripped off by one set of price negotiations.

Knows Just Enough To Be Dangerous

About twenty years ago, I worked for a person who loved to use the following phrase:

• "S/he knows just enough to be dangerous."

Back then, I thought the comment was funny.

Today, the comment is spot-on accurate.

These days, we can "short-cut" the learning process via what is known as "Best Practices".  We go on Twitter and follow a hashtag, and we learn all sorts of wonky things ... "Nine Ways To Maximize And Leverage The Amazing Power Of Social Media" ... "Six Ways To Use Digital Marketing To Turbocharge Your Business" ... "Four Quick Tips For Implementing A Killer Mobile Strategy".

After we spend a few months reading what the pundits have to say, we feel like we're full of knowledge.  And why not?  All of the articles have similar themes, so we feel smart, we feel like we are harnessing the "wisdom of crowds".

And honestly, we've probably learned more than the poor fool who is gaining real knowledge via trial and error.

It's exactly at that point that we "know just enough to be dangerous".

Take a look at this handy little handwritten graph:

I see this play out, nearly every day.

It happens when the Digital Analyst learns so much, so fast, that s/he doesn't even realize s/he is damaging the business by not understanding the feedback loop that exists between online and offline channels.

It happens when the Brand Marketer learns so much, so fast, that s/he decides to double page counts in the catalog in an effort to "make a statement".

It happens when the Social Media marketer learns so much, so fast, that s/he convinces Management to stop mailing catalogs to customers in favor of having customers "join the conversation".

It happens when the Mobile Marketer learns so much, so fast, that s/he diverts marketing resources away from the core business, causing the 55+ rural customer who will never shop via mobile to spend less.

It happens when the Email Marketer learns so much, so fast, that s/he stops emailing customers who aren't "engaged", foregoing sales in hopes of achieving a contact strategy ideal.

It happens when the Catalog Marketer learns so much, so fast, that s/he stop mailing catalogs to online buyers and then are stunned when sales drop, because the Catalog Marketer failed to segment customers properly.

It is my opinion that you cannot accelerate the learning curve ... you can only change the shape of the curve.  Every shortcut you take today will be paired with a mistake you make later on.

Dear Catalog CEOs: But What About ... ?

Dear Catalog CEOs:


Have you ever wanted to try something different?  Maybe you wanted to eliminate a catalog altogether ... or shrink a catalog from 96 pages down to 64 pages ... or mail two 48 page catalogs with a targeted assortment instead of a 140 page catalog with a general merchandise assortment.


You make your case, a reasoned case, no less.


And then, somebody, an EVP, a Director, a Manager, decide to challenge you ... issuing the statement that stalls everything.

• "But what about ..."

"But what about the customers who need a generalized merchandising assortment, you're willing to abandon them?"

"But what about the sales you lose in your strategy?"

"But what about the employees who are responsible for the product you're not going to feature in a smaller catalog, what happens to their bonus levels when you fail to advertise their products?"

"But what about our paper commitment, we've already bought paper?"

The phrase "but what about" is a killer.  It is a statement that protects the past.  It is a statement designed to pit an unknown (a new strategy) against a known (the existing strategy).  And because you can never know how the unknown will perform, your staff put you at a severe disadvantage.

You can combat statements like "but what about".

Remind your staff that every new strategy has an unknown probability of success.  In fact, put together a list of new strategies your or your team employed, strategies that worked.  If you're dealing with merchants, remind them that they constantly introduce new products that may or may not work.  If you're dealing with your marketing team, remind them that they are constantly trying new channels that may or may not work (think of social media as an example of a channel that, for the most part, doesn't work yet is fully embraced by your marketing team).  If you're dealing with your inventory team, remind them that they make predictions about what will sell across a myriad of new tactics/products, remind them that they cannot selectively pick and choose the times they point out risk.

In the next five years, the customer file is going to age.  As the file ages, it will become even more necessary to attempt new strategies.  As you outline new strategies, it will become even more likely that your team challenges you with "but what about" statements.

Do your homework.  Document the times your strategies succeeded and failed.  Demonstrate to your team that you have a reasonable batting average.  

And if you don't have a reasonable batting average, well, that, too, is interesting.

Merchandise Forensics: Channel Skew

We have a lot of channels to manage these days.  And while the pundits tell us that we have to integrate all of these channels in one big bowl of "omni-channel" mastery, customers tell us that each channel serves a unique purpose.

The table below represents a month of merchandise category demand, by advertising channel.  In the bottom half of the table, red cells are at or above average, whereas blue cells are below average.

The catalog channel skews to Mens Apparel, Womens Apparel, and Footwear.

Email skews to Footwear and Cosmetics.

Search skews to Mens Apparel, Footwear, and Accessories.

Affiliates skew like Catalogs ... this is a signature of one channel that supports another ... customers are buying via an affiliate after receiving a catalog.

Online demand skews to Mens Apparel, Cosmetics, and Accessories.

Social disproportionately skews to Womens Apparel.  This is important.  Pundits tell us that 900,000,000 worldwide are on Facebook.  However, the highly-motivated minority who purchase via Social are fundamentally different than the core population.  This requires a different style of merchandise management ... not everything can be integrated when those shopping via this channel are so different.

I frequently find that Search yields a different mix than is illustrated here.  Your Search program is ultimately going after an infrequent shopper, one that has a different merchandise preference than what is purchased by core customers.

I frequently find that Email yields a different mix, one that is influenced by discounts/promotions, and/or one that is influenced by the very best customers.  In most of my projects, the more loyal a customer becomes, the more likely the customer is to purchase via Email.

Use Merchandise Forensics to understand customer differences by channel, then manage each channel in a unique, personalized manner.

I Am In New England on June 27: Got A Few Hours?

A couple of changes to my travel itinerary yield a rare opportunity ... an open slot on my travel calendar!!


If you are in Vermont, New Hampshire, Massachusetts, Connecticut, or maybe even Southern Maine, why not take advantage of a free opportunity to discuss your business with me?  I'm offering a free session from 1:00pm to 3:30pm on June 27, at your office.


This offer is first-come, first-served, so act immediately.  Contact me by email ... click here now!

Merchandise Forensics: Age of Item Purchased

Not everything in life has to be hard.


Go run a simple query.  Calculate the average age of each item purchased in the past year by twelve-month buyers.  It's called "Average Item Age", or "AIA".


Look at this company.


Customers who purchased just one time purchased items that were about two years old.


Customers who purchased five or more times in the past year purchased items that were between 1.00 and 1.25 years old.


First-time buyers purchased items that were "older" than those purchased by existing customers.


What does this tell you?


First, it tells us that infrequent buyers purchase safe items.  This business can respond to this fact ... personalize email messages to infrequent buyers, recommending popular old-school favorites.  Recognize website visitors ... a first-time visitor is presented with safe favorites.


Second, it tells us that new buyers purchase safer items than do existing customers.  This business can respond to this fact.  If it is a catalog brand, you create a prospect catalog loaded with "winners" ... make it easy and risk-free for the customer.


Third, it tells us that the best customers become bored, purchasing new items.  This business can respond to this fact.  Email campaigns should continually advertise newness to best customers.  If you have a catalog channel, create a small, targeted version of the catalog, loaded only with new products, sold to best customers (yes, I understand that this strategy "doesn't scale" and doesn't capitalize on the efficiencies of your typical 96 page catalog ... so what, try it).  Create versions of the home page for your best customers, loaded with "what's new".


It's not 1983 any more, folks!  Analyze the merchandise customers purchase, and react to the reality that different customers have different needs.  Make Merchandise Forensics work for you!

Dear Catalog CEOs: Omnichannel Power Rankings

Dear Catalog CEOs:


Maybe you've read those Power Rankings on ESPN or elsewhere ... wins and losses don't actually matter, what matters is how a group of sportswriters ranks teams!  Well, at least it's a good way to generate page views.


We'll do that here, from ten to one.  Let's not take the actual rankings too seriously, ok?!  I mean, it's probably not worth debating whether Social Media should move up or down a notch!


#10 = Multichannel:  A Woodside Research analyst recently stated that "Multichannel is Dead".  This was fun, of course, because for a decade prior, Woodside Research told marketers that they "had" to be Multichannel or they'd be ... wait for it ... Dead!!!!  Multichannel never truly existed.  Multichannel was a concept created by vendors, bloggers, research organizations, and trade journals to tie the online future to the offline past.  Sales did not increase if you linked everything together in a delicious blend of integrated goodness ... if sales did increase because of it, Circuit City's industry leading "buy online, pickup in stores" would have guaranteed their future, right?


#9 = Omnichannel:  It's hard to believe that you can have an Omnichannel Power Ranking and Omnichannel only ranks at #9, but that's the case.  Have you heard all this blather about "Omnichannel" coming out of Woodside Research and other pundits?  Tell me if this sounds familiar to you.  Online is being overtaken by mobile/social/local, so instead of moving to the future, you have to be "Omnichannel" ...  you have to do offline and online and mobile and social and local.  Oh boy!!!  It's the e-commerce folks demanding a seat at the table of the future, trying to link the past (e-commerce) to the future.  We've been there, before (see #10 above).  It doesn't work.  The more you integrate, the harder it is to execute ... and the harder it is to execute, the easier it is for single-channel newbie organizations to own the future.


#8 = Catalogs:  Yes, I know, you're offended that catalogs only come in at number eight.  But have you had a chance to read this little ditty from the DMA via Multichannel Merchant (click here)?  The authors conclude that even though response rates are down 25% over the past decade, direct mail still rocks!!  The author cites that, even with lowered response rates, direct mail will still have an important role well into the future.  Really?  Really?  What happens when response rates drop another 25% this decade?  What happens when costs increase but response drops another 25%?  What happens when direct mail users (55+, rural) become 65+, rural users?  How we can conclude anything other than an unprecedented transformation of an industry is beyond me?!


#7 = Social Media:  Has there ever been a technology that is more hyped than social media?  If you cater to an under-35 audience, social media is built into the fabric of the brand, much like a call center is critical to a catalog brand.  If you cater to customers over the age of 45, social media hype borders on being fraudulent!  If you cater to a customer over the age of 45, you're told you "must" embrace social media or "tempt obsolescence at your own risk".  We have social media all wrong ... we attribute word-of-mouth, an amazing marketing strategy that has been around since Adam and Eve, to social media.  Separate the two, and social media is much less influential.


#6 = Search:  Pundits say that search is dead, lamenting Google's theoretical demise.  Here's the deal with all of this fluff.  I don't know why we assume that every individual in the United States will use every technology at the same rate.  Each channel has unique advantages to specific demographic profiles.  Search matters to Jennifer, it's how she hunts for information.  It's irrelevant that Jasmine trusts friends more than she trusts Google, fine, let her go!  Search is the tool that Gen-X uses to make sense of the internet, just like Facebook is the tool that Jasmine used to make sense of the web.  You don't integrate search into everything, you capitalize on search within the demographic profile that uses it.  Search is just fine with Jennifer's generation.  Figure something else out for Jasmine and Judy.


#5 = Showrooming:  This is the concept that an army of price-sensitive mobile advocates are driving sixteen miles to go to a Best Buy store to research products in-person, then instead of buying the item at Best Buy along with 8% sales tax, the customer either gets in her car and drives another sixteen miles home to buy the item online, or buys the item online, right there in the Best Buy store, while blue-shirted Twelpforce-infused employees offer extended warranties as a competitive advantage.  This is great in theory, except it doesn't pass the smell test in three important ways.  First, if this was truly happening at scale, then we'd see mobile (don't count tablets in mobile, folks, nobody is standing there in a Best Buy store holding a tablet) transactions at more than one or two percent of total e-commerce transactions.  Second, if this was truly happening at scale, Best Buy would be posting -15% or -20% comps, causing a collapse of the entire retail model (the collapse of the entire retail model may well be happening anyway, but that's a discussion for another day).  Third, if this was truly happening at scale, then Best Buy would benefit from "reverse effects" ... meaning that customers would be using Wal-Mart and Target and Frye's and just about any other retailer to showroom for Best Buy, right?  The reality is that we are in the top of the first inning when it comes to figuring out how customers will integrate mobile with retail, but the trend is very important, and will turn out differently than the pundits tell us it will turn out.  Remember, e-commerce pundits told us that retail was destined for the scrapheap ... fifteen years later, retail may be destined for the scrapheap, but e-commerce didn't cause it to happen.  Showrooming won't kill retail, either.  By the way, if you think that showrooming is so darn important, go spend three hours at a Best Buy store, and count how many customers, out of 100, are actually engaged in the process of showrooming.  Seriously, go do it.  Record a video.  The numbers (and behavior) are self-evident.


#4 = Apple:  At some point, we have to classify Apple as a channel of it's own.  They are responsible for tablets.  They are responsible for the iPhone and ultimately for the competition that was caused by the creation of the iPhone, which came from the iPod which transformed the music industry.  An entire industry around apps was created because of Apple.  They integrate across devices, but are self-contained within their own ecosystem ... devices literally speaking to each other ... and you'll soon be controlling you Mac with gestures.  What company, other than maybe Amazon, influences your day-to-day life as much as Apple? 


#3 = Mobile:  Though one can make the argument that mobile, as a channel, is no different than Apple ... mobile / Apple are fundamentally one and the same ... with Android/Google providing mild and directionally similar competition.  If you care about Jasmine, you care about mobile, so you care about Apple.  If you care about Judy, mobile is irrelevant.  And honestly, it's time to toss tablets out of the mobile discussion.  Throw 'em out, folks!  Tablets are a whole 'nuther genre of technology, used differently by people.  When you're walking out in public, maybe at a farmer's market, count how many people are thumbing information into a smartphone vs. a tablet.


#2 = Email:  Sure, email is dead, as the pundits say.  Except, have you noticed that email is the only channel that spans all generations of commerce?  Brands that cater to Judy use email marketing.  Brands that cater to Jennifer thrive on email marketing.  Brands that speak to Jasmine have email as one of the few channels that allows them to push a message to Jasmine. Sure, you only generate $0.10 per email sent to a customer ... but you also send 150 messages a year, so that's $15.00 of incremental demand and $6.00 of incremental profit, per customer, that you wouldn't otherwise generate.  If the channel is dead, go ahead, ignore the volume.  I know of classic direct marketers that generate $10,000,000 of annual profit, but lose sight of the fact that they generate $0.10 of demand per email delivered across a list of 1,000,000 names and 100 campaigns, yielding $10,000,000 of annual demand and $4,000,000 of annual profit ... 40% of total company profit from email!!!  It happens all of the time.  Nobody looks at the data the right way to make the connection.  Those that do look at the data that way have a huge competitive advantage.


#1 = Word of Mouth:  We mistake all channels for the activity that fuels the channel.  Word of mouth matters.  Pinterest, in and of itself, is not new or interesting.  For whatever reason, however, it benefited from word of mouth.  When people talk about things going "viral", they're really talking about word of mouth.  Word of mouth fuels modern online activity, especially among Jasmine's generation.  That being said, word of mouth has always been there.  Catalogers, do you remember when you used to send out two million catalog requests a month?  That happened because of old-school world of mouth!  We spend so much time trying to astroturf "viral" activities, without ever thinking about what causes word of mouth to happen.  Great products with great and sharable stories ... that seems to fuel word of mouth.  Among Jasmine's generation, there seems to be a resurgence in word of mouth.


Terms that did not make the top ten list:  CRM ... Social CRM ... Net Promoter Score ... Optimization ... Purchase Funnels ... Local ... Personalization ... Relevancy ... Engagement ... Social Search ... Branding ... Infographics ... Big Data ... The Cloud ... Big Data Meets The Cloud ... Private Clouds within The Cloud ... Infographics about Big Data Meeting Private Clouds in The Cloud ... Disruption ... Facebook ... Twitter ... Amazon ... Kindle ... Nook ... Viewthroughs ... Viewable Impressions ... Open-Source ... Virtual Anything ... Pinterest ... Blackberry ... Microsoft ... Yammer ... Content Marketing ... Yahoo ... Digital Analytics, Digital Marketers, and anything else Digital ... Square ... Video on Demand ... Co-Ops ... Social Commerce ... Facebook Commerce ... Instagram ... and an infinite number of topics that render anything that currently exists "dead".

Average Item Age

... or, as the kids call it, AIA.


Average Item Age is simply the average age (years, months, your choice) of the items your customer purchased.


Look at this example:

	AIA	Annual Sales
2012	3.8	$37,493,028
2011	4.3	$33,968,940
2010	4.5	$33,403,884
2009	4.3	$34,504,847
2008	4.1	$37,448,221
2007	3.9	$38,428,122
2006	4.3	$36,483,028
2005	4.7	$33,548,831

Do you notice a correlation?


When sales are up, the average age of the items a customer purchases is between 3.8 and 4.1 years old.


When sales are down, the average age of the items a customer purchases is between 4.3 and 4.7 years old.


This is a business where customers appear to prefer newer products.  When products become stale, sales suffer.


Of course, there are businesses where the opposite relationship holds ... customers trust existing product, and when you throw new product at the customer, the customer rejects it.


What matters, of course, is that you track this metric.


Show of hands ... how many of you know the relationship between Average Item Age and Annual Net Sales?

Coldwater Creek: An Ominchannel Poster Child

Coldwater Creek is a great omnichannel poster child ... a stock price that dropped from $23 five years ago to $0.65 today ... net sales that are down 35% from five years ago ... headed toward six consecutive years of losses.


Meanwhile, Chicos is posting 6% EBIT, running a similar business model to Coldwater Creek.


Coldwater Creek has done everything the omnichannel pundits told them to do.

1. They grew via catalog.
2. The moved into retail, aggressively, taking full advantage of the "bricks 'n clicks" opportunity.
3. They dove into e-commerce, and have credible email, search, and affiliate programs.
4. They cut back on catalog circulation as that channel, as the experts say, "died".
5. They have a mobile platform.
6. They are active in social media.
7. They integrate their brand messaging and merchandise across channels, just like the experts told them to do.

And yet, none of the stuff that the omnichannel experts demand of Coldwater Creek works. 

Explain that one, folks.  How is it that Coldwater Creek did everything the experts told them to do, and it worked exactly opposite of what the experts anticipated?

What matters is merchandise.  Product matters.

If this omnichannel nonsense mattered, then the following would hold true:

• Dell would have doubled sales in a few years because of their laser-like focus on social media (remember, markets are conversations).
• Amazon would be out of business because they don't have a nationwide store presence.
• OneKingsLane couldn't possibly grow from $0 to $200,000,000 by merely curating an assortment that is readily available nearly everywhere else on the planet, especially in retail where 85% of sales still happen.
• Chasing Firefiles wouldn't go from $0 to maybe $40,000,000 in a few years by focusing on a dead channel like catalogs.
• Best Buy would be thriving because of a brick's 'n clicks presence that is fueled by mobile and by the social media star known as the "Twelpforce" ... showrooming would help them because customers would use their mobile devices in a Wal-Mart or Target store to check prices at Best Buy and then buy via Best Buy's mobile site ... if showrooming works in one direction for Amazon, it has to work in the other direction across retail competitors ... right?
• There would be thousands of examples of "engagement strategies" that caused businesses to post +15% sales increases over a "pre-engagement" world.

Omnichannel is nothing more than determining the color of the sprinkles on top of the frosting that rests on top of the cake.  It's something that bloggers, vendors, consultants, and trade journalists talk about to generate page views and to sell projects into clients looking for magic.

All magic comes with a price.

What matters is merchandise.  Product matters.

The Magic of Average Order Value

Let's walk you through an example of why merchandise productivity, expressed via Average Order Value, is so darn important.


We'll use Paid Search as an example.  Here's what happens when you have, say, a garden-variety $100 AOV that hasn't changed much in the past five years ... and next to that column, you have a business that has a $115 AOV, achieved via increased merchandise productivity.

	$100 AOV	$115 AOV
Clicks	1,000	1,250
Cost per Click	$0.53	$0.59
Conversion Rate	1.30%	1.27%
Average Order Value	$100.00	$115.00
Demand	$1,300	$1,826
Net Sales	$1,105	$1,552
Gross Margin	$663	$931
Less Ad Cost	$530	$738
Less Pick/Pack/Ship	$111	$155
Variable Profit	$23	$38

Merchandise productivity is the best friend of a marketer.  In this case, a 15% increase in merchandise productivity causes the marketer to be able to spend more money per click, which drives incremental clicks, causing a 40% increase in demand.


Does that make sense?


A 15% increase in merchandise productivity gives the marketer the ability to spend more per click, causing a 40% increase in Paid Search demand, and in this case, a 65% increase in profit.


Instead of focusing on the gimmick that can be "offered" to the customer, why not invest energy figuring out how to merchandise your site, your landing pages, and your advertising, so that you have the productivity that enables you to spend more money marketing?


Marketing * Merchandise Productivity ... it's a multiplicative relationship.  Take advantage of it.

Dear Catalog CEOs: Average Order Value

Dear Catalog CEOs:


When is the last time you studied how to get customers to spend more per order?


No, not spending time studying with your marketing department.  Those folks want to offer free shipping or 20% off or they want to cross-sell some meaningless items in the call center.  Those are all gimmicks.


I'm talking about real merchandise productivity.  You know what I mean.  It happens when a customer can't help herself, and has to purchase a third item because she absolutely loves the merchandise.


There are four metrics that determine how much a customer loves your business.

1. Annual Repurchase Rate.
2. Orders per Buyer per Year.
3. Items per Order.
4. Price per Item Purchased.

Average order value is a function of (3) and (4), so it is pretty important.

I'm in my local grocery store last week.  At the deli, one of the employees asks how my dog is doing?  Then she prepares a sample of a Vietnamese wrap she prepared.  Then she told me that the wrap was fresh (prepared an hour earlier), so it will taste great.

I walked out of the grocery store with a Vietnamese wrap.  My $174 purchase became a $179 purchase.

I didn't spend $5 more because of a silly coupon or marketing gimmick.  I spent $5 because the merchandise was tasty.

I keep seeing a split in the marketplace.

1. Businesses racing to the bottom ... lowering prices, offering freebies, offering 20% off, trying to achieve "scale" or some other marketing theory that satisfies a fraction of the punditocracy.
2. Businesses focusing on getting customers to love merchandise.

Increasingly, I am seeing businesses that are thriving by bulking up average order value ... not by manipulating it via discounts/promos/gimmicks, but by getting customers to spend more, per order.

Run a rolling twelve month file analysis, and evaluate your average order size over the past seven years.  What drove AOV when it peaked (items per order or price per item purchased)?  What caused AOV to sink?  How do you get your merchandising team, your online team, and your marketing team to focus on getting the best merchandise in front of each and every customer?

Spend some time on this topic, folks.

Silence on the Future of Catalogs

Lots of silence this week, when I discussed the average age of a catalog shopper.

To refresh your memory, here's the "lost generation" for catalog marketers.  Her name is "Jennifer".

She's somewhere between 36-50 years old, with an average of 43 years old.

The data I analyze show that this customer is online-focused.  Catalogs, at best, influence her behavior.

Jennifer doesn't trust us.  When she sees that we're offering her free shipping on orders over $100, she goes online and finds out that last week the business she wants to order from offered customers 20% off, and she finds out that other customers were offered 10% off plus free shipping.  Left with no alternative but to find the best price, she has to use all online resources to facilitate her hunt.

Take a look at this graph ... shared earlier this week in one of the least embraced posts I've written in the past year (click here).  This graph shows the age distribution of our country, and also illustrates the age distribution of many non-kids based catalog brands.  

Look at the 30-39 and 40-49 bands ... Jennifer is not buying from catalog brands at the rate that Judy is buying from catalog brands.

This is a reality that is causing silence.  Nobody wants to talk about the demographic mis-match between catalogers and the general population.


Granted, if you have always catered to a 60 year old customer, then this is meaningless.


But if you catered to a 25-54 year old in 1990, then a 35-64 year old in 2000, and a 45-74 year old today, well, you're just following a generational cohort who will be 55-84 years old soon, and after that ...... ?


Our strategy of fully integrating all channels failed ... it caused our customer base to age significantly, as we only appealed to customers (core customers, as the experts say) who liked a strategy that placed the catalog at the center of the ecosystem.

Now, it is time for us to start rebuilding the business ... protecting the sales and profit from the 55+ audience while searching for a path to the future.

And a path exists!

1. Competition:  We can offer free shipping, especially with a hurdle, by reducing catalogs to Jennifer / Jasmine, using those funds to pay for free shipping.  This is why you hire me, to save money, money you can reallocate.  Contact me here for details!
2. Stop Tethering Online Channels To The Catalog.  Grow these channels ... allow the customers who shop here to use the channel as more than a glorified catalog order form.  I know, easier said than done, but go take a look at the websites of businesses that are not tethered to catalog marketing --- big difference, right?
3. Diversify New Customer Acquisition:  The co-ops have become really, REALLY good at feeding you 55+, rural customers.  Wow.  Sure, these names are responsive, but these names protect your business today, they don't guarantee your future.  We've got five years, plus/minus, to chart a path to the future.  That path begins with the process of acquiring customers like Jennifer / Jasmine.  Do we have the chops to do this?  And yes, I know, you're going to tell me that Jennifer / Jasmine don't have long-term value.  Who's fault is that?
4. Carefully Analyze Merchandise:  This is going to be a theme with me, through the summer and the fall.  Our merchandise planning process is broken, and our ability to analyze "who buys what" is more broken.  Quick --- tell me what sales look like, by merchandise divisions, among paid search customers?  Out of 100 catalog brands, I'd be willing to bet fewer than ten can produce this table.  How else do we learn how non-catalog loyal customers behave?  And, yes
5. Be Nimble:  I know, harder said than done.  The entire catalog planning process is a 7-9 month marathon ... and while catalogers are predicting in June what a customer might purchase next March, online competitors are planning 16 unique sales events for next week alone.  There are online brands that are able to imagine new products, design them, source them, and make them available for sale in two weeks.  Two weeks!  Can catalogers compete with that?  Well, yes, absolutely ... if you step outside of a 7-9 month catalog planning process.

Time for your thoughts ... why are you so quiet, when it comes to this topic?

Email Marketing Evolved 2012: Stockholm

I will be speaking at Email Marketing Evolved 2012 in Stockholm this October (click here for details).  Looks like a good day of content to me, this would be a good time to sign up!

Frequently, my travels include visits to clients wishing to discuss various projects.  If you are thinking of a project, this is the time to pursue it, so that we can get the project completed prior to arrival in Europe in late October.

Contact me now (click here) and send me details of the work you'd like done.  I look forward to seeing many of you in October!

This Isn't What The Multi-Channel Pundits Promised Us: Age Distribution

Take a look at this chart.

The blue bars represent the average age of individuals in 2010, per data from the Census Bureau (click here for details).


The green bars represent what I see across about 65% of catalog brands.  If we exclude Kids businesses (for obvious reasons), the distribution frequently looks like what we see with the green bars.


Yes, this means that the average catalog shopper is old.


That's fine today.  Folks around the age of 60 have more money than folks around the age of 30, right?


For a decade, we were told that if we were "multi-channel", we'd be successful.  We just had to align all of our channels around the core business, providing an "omni-channel" experience that customers craved.


Nonsense.


Aligning all of our channels around our core business caused our core audience to like us.  


It did not cause an entire generation of customers to even bother to consider us.  And that's about to become a huge problem.


We're stuck in a nasty feedback loop.  Customers age 50-69 love our products.  We measure the products customers love, then we get more of those products, products that 50-69 year olds love.  And with a 38% annual retention rate (average across 75+ clients in 5+ years of doing this), we have to find a TON of new customers each year.  Guess where we go to find new customers?  Co-ops!!  And who do the co-ops feed us?  Well, they feed us responsive names ... and those names tend to be 50-69 years old (and often rural ... just run a report for yourself and learn what's happening in your business).  What do the names that the co-ops feed us like?  Well, it's product presented and merchandised to 50-69 year olds.


We can't get out of this nasty feedback loop.


By forcing the multi-channel experience to revolve around the catalog, and by forcing our primary customer acquisition channel to align with the co-ops, we created the scenario illustrated in the graph above.


I know, I'm supposed to offer a solution to this problem.


But we don't want to hear the solution to the problem, do we?  That requires change.  And we don't want to change what we're doing.  It's fun to spend six months creating the Holiday catalog ... it isn't fun to create sixteen flash sales events a week, it isn't fun trying to build a business that caters to a 30 year old shopper (Jasmine), a business that uses the communications channels of a 30 year old shopper.


When I presented this problem to an industry expert back in March, the industry expert issued the following statement:

• "By the time this thing blows up, I'll be retired."

By the time this thing blows up, I won't be retired.  I'll be busy cleaning up the mess.


It might be a good time for those who won't be retired in ten years to start developing a strategy for a mess that is a few years out, but is now nearly unavoidable.

Dear Catalog CEOs: Content

Dear Catalog CEOs:


Have you had a chance to read this little ditty about the book industry, in the NYTimes (click here)?


It sounds like authors are being stretched ... audiences have an insatiable desire for content.


I want to create a contrast for you.


I recently overheard this comment from an Executive at a conference:

• "We simply don't have anything to tell the customer.  We mail a monthly catalog, and by month five of a season, we've beaten every possible story over the head of the customer.  Our customers are bored.  We're just trying to get to a new merchandising season.  At that time, we'll have a new series of catalogs ready to go."

And I recently overheard this comment from an Executive at a conference:

• "We have sixteen sales a day.  Sixteen!  And each sale is time-limited.  We work with our merchants and inventory team to come up with concepts that stimulate the customer, that cause the customer to act, today.  The customer wants to be told what to do.  That's what we do.  As long as we're in a good inventory position, we can create a sale today and put it up on the site today."

There is something about cataloging that reduces urgency.  Everything is planned.  Everything is planned months in advance.  The DNA embedded in a catalog employee is pre-disposed to thoughtfulness, carefulness, planfulness, steadiness.

The multi-channel movement of the past decade sure didn't help us, in this respect, did it?  Everything had to be integrated across channels, so any ability to be nimble online was squelched by the need to integrate with a catalog that would be mailed months later.

Maybe it is time to reconsider the content we publish.

Maybe it is time to be nimble, to create urgency, to trust a different set of employees with a different set of skills to drive business.

Thoughts?