A Simple Look At New, Discontinued, and Carryover Merchandise

It's a simple table, really.

And yet, it tells us an amazing amount of information.

This is a business that is being killed by the merchandising team.

I like to look at what I call the "carryover ratio" ... comparing how carryover product performed last year, vs. two years ago.

• 2011 Carryover Ratio = 74,382,048 / 87,443,297 = 85%.
• 2012 Carryover Ratio = 69,483,920 / 86,854,900 = 80%.

The stuff the merchants decided to keep performed at 80% of prior year levels in 2012.  A year ago, the carryover ratio was 85%.  This tells us that what the merchandising team kept is dying at a faster rate than in the past.

Look at the number of newly introduced products, year-over-year.

• 2011 = 845 items.
• 2012 = 749 items.

Your merchandising team doesn't have enough new product in the pipeline.  Look at demand per item for new merchandise.

• 2011 = 17,910,854 / 845 = $21,196.
• 2012 = 14,559,047 / 749 = $19,438.

Not only did your merchandising team throttle new product development, the new items they introduced performed close to 10% worse than last year.

I also like to look at the ratio of new merchandise demand to discontinued merchandise demand.

• 2011 Ratio = 17,910,854 / 4,772,277 = 3.75.
• 2012 Ratio = 14,559,047 / 5,438,002 = 2.68.

New merchandise is not generating enough of a multiplier against discontinued merchandise.

These are easy metrics to acquire.  Go acquire them, analyze 'em, see if merchandise is your problem (hint, it usually is).

Barnes and Noble: #Omnichannel Fail?

You probably had an opportunity to review this little ditty from Barnes & Noble (click here).

A few questions for the omnichannel marketing community, a group that tells us that bricks 'n clicks and online and digital is far better than a single channel solution:

1. Why would Amazon, with no retail, have a growing Kindle business, while B&N, with stores, be struggling?
2. Why would B&N, with bricks 'n clicks and e-commerce and digital (Nook), be struggling, even after the top competitor (Borders) went out of business?

Barnes & Noble does what omnichannel experts love - bricks 'n clicks, e-commerce, and digital (Nook).  Retail competition was vacated when Borders failed.

And yet, B&N is struggling to compete with Amazon, a single-channel competitor.

On Twitter, I received this comment:

• "It's not omnichannel's fault.  B&N was a sinking ship.  If anything, omnichannel is slowing down the sinking of the ship."

Why is it that when a business is doing well (say Macy's), we credit omnichannel for the success, but when a business is clearly failing in competition with a single-channel entity, we blame the victim?

Ok, time for your thoughts.  If total sales equate to 100% of a business, what % is caused by omnichannel?

New and Discontinued Merchandise

Each year, your merchandising team makes a series of decisions that impact the future health of your business.

Most of us fail to measure the impact of these decisions.

Let's go back to Nordstrom, circa 2003.  One of the better selling items in the catalog was the stirrup pant (click here).  Folks in the stores, however, hated these things ... simply unfashionable, and they got dinged when catalog customers returned the things in stores, because stores didn't carry comparable items.

By 2005, stirrup pants were no longer the scourge of the online division.  Even though the item sold well and paid for itself, the merchandising team made a strategic decision to no longer offer the item.

When your merchandising team decides to kill an item, they must replace the item with a new product.  Over time, new products must perform better than the items they replace.

Here's a homework assignment for you.

1. Identify all items that your company sold in 2011.
2. Identify all items that your company sold in 2012.
3. Segment items into three groups ... offered in 2011 and 2012 ... offered in 2011 and discontinued in 2012 ... offered in 2012 but not in 2011.
4. Measure total demand on carryover items ... items discontinued ... and items introduced.  Did carryover items perform better in 2012 than in 2011?  Did discontinued items perform better in 2011 than newly introduced items in 2012?

This simple analysis tells you a lot about the effectiveness of your merchandising team.

And if your business is in flux (growing fast or shrinking quickly), standardize your analysis.  Look only at customers with 2 purchases last year, then repeat steps 1-4 above, equalized per 1,000 customers.

Merchandise

What is in the center of this ecosystem?

Merchandise!

In the past two years, my projects have taken a different direction.  You are asking me to understand customer behavior, no doubt, but you're increasingly asking me to illustrate the role that merchandise plays in driving channel behavior.

Not surprisingly, there's a unique relationship in merchandising that parallels the relationship observed in customer interaction with channels.  Not surprisingly, at least half of my projects identify a merchandise-related issue that is holding a business back.

It turns out that there are four key issues that tell me why a business is struggling.

1. Sales performance of existing items.  When items tire, performance drops.  The ratio of this performance drop, over time, can tell us something about the future of a business.
2. New items.  New items are comparable to new customers ... if your product development pipeline is failing, your business is failing.  This is the most common problem I see.
3. New item performance vs. discontinued item performance.  When the ratio is decreasing (new items not performing well over time, discontinued items performing better over time), the business struggles.
4. Disproportionate focus on a small number of high-performing items.  Think Apple, for a moment.  If the iPhone and iPad perform poorly, the whole thing craters.  It is common to see half of sales come from 5% of items.  This is risky, but it is reality.

Since merchandise trumps channels, it is important to analyze merchandise as vigorously as we analyze channels.

Can you even remember the last time you analyzed the four issues listed above?  If not, you have something to do tomorrow!

Co-Ops: A Must Read For Catalogers

With NEMOA just weeks away, we are reminded of the primary vehicle catalogers use to maintain sales ... co-ops!

A customer purchases online from a popular catalog brand.  This purchase, in accordance with the privacy policy, is passed along to various co-ops, in a relationship not unlike a farmer passing chickens to Land 'O Lakes for free in exchange for the future purchase of eggs.

The name/address, channel, and merchandise information is absorbed into "the cloud", where it is modeled, re-shaped, morphed, transformed, digitized, homogenized, pasteurized.  It's a recent, active purchaser from a catalog brand.  Catalogers love these names.  They rent them, for one-time use at +/- $0.06 each, from the co-ops.  

These days, it's not uncommon to see 75% of new catalog buyers sourced from co-ops.

Since the cataloger must receive a positive return on investment for giving co-ops access to assets for free, the co-ops do a credible job of rank-ordering names from best to worst.  The cataloger has a reasonable chance of acquiring new customers.

In the cataloger / co-op feedback loop, we churn the same names through the ecosystem, over and over and over again.  Sure, there are 100,000,000 households in the ecosystem, but the top 8% keep cycling through.  

Judy keeps cycling through the ecosystem.  Over and over and over again, at $0.06 a pop.

Jennifer does not cycle through as often.  Her purchases from non-catalog brands do not enter the ecosystem.  Her behavior is cycled through Google's complex adaptive system.  Or through the giant Amazon cumulonimbus cloud.

Jasmine barely interacts with the ecosystem.  Her friends' IDs are being shared with various companies that allow login via popular social networks, a whole different set of pros and cons to deal with.  Talk about a complex adaptive system - Jasmine logs in at some random site via Facebook and brings 229 of her BFFs along with her.

Our complex adaptive system is skewed to Judy.  We know this, because demographic data is appended to our customer data.  We actively measure the customers acquired from the co-ops, we know their age.  These customers aren't heavily skewed to those age 18-44, are they?

From the early 1990s to the early 2000s, the co-ops built their footprint, one company at a time.  Hard, hard work, on their behalf.  They earned their success. I remember the reps coming in to Lands' End and Eddie Bauer, selling the convenience and inexpensive nature of co-op modeling, begging for equal treatment in the merge/purge process.

From the early 2000s to the late 2000s, catalogers went all-in, destroying the list industry in the process.  I'm not sure whether that's a good thing or bad thing.  I will say that the brain drain that followed was awful.  Smart catalog brains fled to e-commerce, and today, mobile/social.  We traded decades of business knowledge for a peripheral knowledge about statistical models.

With the list industry in ruins, catalog prospecting and customer housefile management moved to the cloud.  Popular database companies maintain the existing customer relationship.  Co-ops (sometimes the same company) maintain the prospect customer relationship.  The cataloger barely owns the customer anymore.  If lucky, the catalog marketer forecasts sales per catalog, online sales, and the number of and content of marketing contacts.  We now know how to manage a process.  We don't know how to manage a customer relationship.

The complex adaptive catalog ecosystem does the rest.

The next part of the story should frighten catalog marketers.

The complex adaptive catalog ecosystem is spinning older and older names, self-optimizing itself to maximize the short-term, immediate profitability of the ecosystem.  We know this, because we measure the age of customers acquired from the co-ops.  It's common to see names that age 7 years for every 10 years that pass.

If the co-ops are spinning 58 year old names through the system today, they'll spin 65 year old names through the system in ten years.  Those people won't be customers anymore, they will be retirees.  The very system that generates short-term profit today is destined to deliver significant profit challenges in the future, if it keeps spinning older and older names at catalogers.

This goes well beyond what is happening in the cloud.  When the co-ops spin you a 50-69 year old customer, they spin you a customer that has specific merchandise preferences, preferences of a person age 50-69.  This means that certain items, and certain creative presentations, are going to work best in catalogs to a 50-69 year old audience, causing your merchandising team to misread trends.  Your merchants are reacting to the names the co-ops give you, not to the macro-economic trends that exist.  The items your merchants feature purposely lack appeal to an 18-44 year old customer, further shutting out the very audience that may preserve your future.  If you think I'm wrong, show your catalog to employees age 35 and younger, and ask them to judge the creative style and merchandise presentation of the catalog.  Their critique may not please you.

Unknowingly, your merchants and creative team are fueling the feedback loop.  They have no choice, do they?  In a data-driven world, they have to honor the data.  The data is driven by the customers you acquire.  The customers you acquire come from the co-ops.  The co-ops optimize around the most frequent catalog buyer.  That's a 55+ customer.

Some feedback loop, huh?

That's the world, as it exists today.  Overlay demographic data, and decide for yourself if I am accurate.

You cannot blame the co-ops for hyper-optimizing to a solution that ages your customer file.  That's their job.  You can blame the co-ops for not explaining to you what is happening.  Without you, they don't exist.  They have a responsibility to teach you the information I'm sharing with you today.

If this continues, the co-ops will run you out of business, and in the process, will destroy their own business model.

Fortunately, your future is not pre-determined.  You, the catalog executive, have the opportunity to use propulsion to eject yourself from the co-op feedback loop.  You, that's right, you get to determine if this continues. 

In the short-term, this will not be a profitable opportunity.  In the short-term, there will be pain.  In the short-term, the metrics will appear unfriendly, they will scream at you to run back to the comfort of the co-op feedback loop.

We made decisions that, in the short-term, made the most sense, that maximized short-term profitability.

In the next few years, it will be time to make decisions that are best for the long-term.

At NEMOA in a few weeks, have robust discussions about the feedback loop we're currently stuck in.  Print this article, and take it with you.  Have a real discussion with your vendor partners about your future.

Dear Catalog CEOs: More Valuable

Dear Catalog CEOs:

I've yet to meet a business leader who turns down customers who are "more valuable".

On the surface, we look at all of the channels in this image, and we think "if the customer touches more of them, then the customer must be more valuable."

Maybe.

Think, for a moment, about your relationship with your favorite restaurant.

I'll bet you have a favorite dish.  At one restaurant, I have to order calamari ... can't help myself!  And I'll cycle through main dishes, with two or three favorites, and others I'll enjoy on a whim.  My relationship is with the restaurant.  Each item on the menu is similar to a channel.  Each time I visit the restaurant, the odds of me trying something different increase.

This is where we get the relationship wrong.  A customer likes our brand.  The customer manifests this gratitude via channels.  We simply measure gratitude incorrectly.

Don't view channels as the end result.  The customer likes you, and one of the symptoms of gratitude is use of multiple channels.  You don't necessarily create gratitude by forcing the customer to use more channels.

Omnichannel and People: Macys and Belk

Experts outline two recent executive announcements as proof that omnichannel is the future.

• Macy's (click here).
• Belk (click here).

It's been 18 years (1995) since I first heard an executive (at Eddie Bauer) mention the critical importance of "multichannel" - in a meeting, he discussed how digital and retail needed to align to better serve the customer, while everybody else offered blank stares in response.  This individual might be responsible for the phrase "multichannel customers are worth 8 times as much as single channel customers", and I ran the query (under protest, of course)!

In other words, the experts have been beating retailers up for almost two decades ... two decades of dissatisfaction with how retailers respond to first e-commerce, and now, mobile.

When you appoint an executive to lead an area, you are saying that you have a people problem.  I'm not saying that either company is better off or worse off than others.  I am saying that it is terribly difficult to get 150,000 employees (or 150 employees) to all pull in the same direction.  So you put somebody in charge, and you expect that person to make things happen.

Hiring omnichannel executives isn't proof that omnichannel arrived.

Hiring omnichannel executives is proof that it is terribly difficult to get people, human beings, to all do something deemed important by Sr. Management.

eBay and #Omnichannel and Profit and Mobile

You can cobble together some interesting information from eBay's financial statements.  Here's a link to their 10-K for 2012 (click here to read it).

By merging various sources of information, we can guesstimate Marketplaces volume and PayPal volume, and we can estimate the share that come from mobile.  

It's likely that +/- 10% of PayPal volume is mobile, up from +/- 4% a year ago.  It's likely that +/- 20% of Marketplaces volume is mobile, up from +/- 10% last year.  Go cobble the data together yourself (use Google) and see what you can learn.  I'm accurate enough to make the point that follows:

Let's look at eBay total annual net sales, and total annual earnings before taxes, for the past five years.

• 2012 = $14.0 billion sales, $3.1 billion profit.
• 2011 = $11.7 billion sales, $3.9 billion profit.
• 2010 = $9.2 billion sales, $2.1 billion profit.
• 2009 = $8.7 billion sales, $2.9 billion profit.
• 2008 = $8.5 billion sales, $2.2 billion profit.

Those are some nice profit numbers, huh?

Now, let's compare profit numbers from two different years.

• 2009 = No Mobile to Speak of ... $2.9 billion profit.
• 2012 = Surging Mobile Sales ... 10% to 20% of total by business unit ... $3.1 billion profit.

So, yes, mobile is going bonkers.

And, yes, there's no impact on profit.

Please, omnichannel experts, refer to this profit and loss statement, when discussing the myriad financial benefits of omnichannel customers.  If omnichannel customers were more valuable than everybody else, and eBay is rapidly transitioning customers from e-commerce to mobile, then wouldn't profit be absolutely surging?

In fact, you can make a strong case that in the pre-mobile era, eBay generated 33% pre-tax profit (2.9 / 8.7) ... but now in the mobile/omnichannel era, eBay is generating 22% pre-tax profit (3.1 / 14.0).

You don't hear this story told very often, do you?

Office Depot / OfficeMax Merger

By now, you've heard that Office Depot and OfficeMax are merging (click here).

This raises so many interesting questions about the future of retail.

On one end of the spectrum, we have experts who tell us how retail and e-commerce and mobile all fit together in a wonderful blend called "omnichannel".  These folks paint a bright future, one where modern technology helps retailers (click here for one example).

On the other end of the spectrum are the digital elite.  They tell us that retail is dead (click here).

In-between are the Web 1.0 companies who are branching out into retail ... Google, for instance (click here) ... Microsoft ... and Apple, too.

Who is right?  Everybody!

The omnichannel camp is right to integrate all aspects of retailing.  The omnichannel camp cannot prove that their thesis leads to an increase in sales and profit.  Saying that omnichannel customers spend more is ridiculous ... any customer that does more of anything is more valuable than a customer only buying one time in one channel.

The digital elite are right to suggest that a small decline in retail sales is fatal for most retailers, given the debt load most retailers are saddled with.  But the digital elite fail to account for the reality that retail still drives 90%ish of total commerce ... if e-commerce was so amazing, wouldn't e-commerce represent half of total commerce?  Exactly.

These viewpoints represent "small battles".  Folks love to focus on small battles, because small battles don't have a right or wrong answer.  There's no downside to being on the losing end of a small battle.

Here's the difference between a small battle and a real question.

• Small Battle Argument:  "Can the combined Office Depot / OfficeMax can beat Staples and Amazon with a comprehensive omnichannel strategy?"

• Real Question:  "What customer problem does the combined Office Depot / OfficeMax solve better than any other company?"

If you cannot provide a valid answer to the real question, the small battle argument is pointless.

Since it is really hard to answer the real question, we focus on small battles.

In the comments section, try to answer the real question.

Weighted Channel Pairs

In this image, distance matters.

Mail and omnichannel are far apart.

I recently read an article, suggesting that mail is one of the best ways to drive a mobile transaction.

Maybe.  But you can answer this question, using your own data.

In your database, create what I call "channel pairs".  In other words, weight transactions based on historical importance.  Transactions in the past year count for a weight of 1.00, transactions 13-24 months ago count for a weight of 0.50, transactions 25-36 months ago count for a weight of 0.25, all older transactions count for a weight of 0.125.  Multiply the weight by the dollar value, and you have something!

After doing this by channel, identify the most important channel, and the second most important channel (by weighted dollars).  Run a query that identifies the most common channel pairs.

• Customer #1 = Retail First, Email Second.
• Customer #2 = Tablet Commerce First, Catalog Second.
• Customer #3 = Retail First, Mobile Phone Second.
• Customer #4 = E-Commerce First, Search Second.

Now, think about your strategy for each of the four customers above.  Does the strategy include "doing everything"?  Probably not.  Just as important, you'll learn which channels are aligned with each other.  This type of data leads to the distances illustrated above.  Overlay customer demographics, and you have something!

However, you probably won't find much of a link between mobile and direct mail.  And that's ok.

From Multichannel to Omnichannel

In marketing, distance matters.  Well, at least it matters in this chart.  This chart is part of a presentation that's been downloaded/viewed more than 1,000 times in the past month (click here for information).

Multichannel was the glue that connected Judy's world ... catalogs, e-commerce, and retail.

Jennifer didn't need glue, still doesn't.  She figures out what is best for her and her family.  Maybe Amazon is her version of multichannel.

Jasmine is aligned with omnichannel.  Devices will be linked, content will be streamlined.  Jasmine is the target customer for omnichannel efforts.

Keep these trends in mind.

• Judy = Multichannel.
• Jennifer = Amazon.
• Jasmine = Omnichannel.

Then pair your customer (Judy, Jennifer, or Jasmine) to the trend.  What does that tell you?

Dear Catalog CEOs: Crunchy Peanut Butter

Dear Catalog CEOs:

Recently, we had a guest in our home.  To protect the innocent, I'll adjust the story just a bit.  This person wanted to eat breakfast.  He looked in our cupboard, searching frantically for something.  Then he turned, looked at me, and said the following:

• "You don't have crunchy peanut butter?  You're telling me that you don't have any crunchy peanut butter in your home?  None?  How is that possible?  It's a staple!  Everybody has crunchy peanut butter in the cupboard.  Everybody!"

Breakfast was ruined.  It wasn't like the guest didn't get a meal, mind you.  It was just a meal without crunchy peanut butter.   

As they say on Twitter, #firstworldproblems.

We have #firstworldproblems in marketing, too.  We must have #omnichannel in our cupboard.  Omnichannel is the crunchy peanut butter of 2013, replacing big data, which owned 2012.

Back in the day, it was email marketing.  Or banners and affiliates, or even comparison shopping engines.  Then it was search. Then multichannel.  Oh, you couldn't live without multichannel, just ask Circuit City.  Then MySpace.  Then podcasts, because everybody is dying to listen to a twenty minute show about the myriad benefits of extended warranties.  Then Second Life, you had to set up a virtual store or you'd be left behind, right?  Then it was the "long tail", just reap the rewards of the long tail!!  Then Facebook.  Then Twitter.  Then QR codes.  Then retargeting.  Then mobile.  Then tablet commerce.  And here, in 2013, we realized that you can't just have all of those strategies buried in silos, you need to fuse them together ... call it omnichannel!

All you have to do is integrate every single aspect of your marketing plan ... same creative ... same promotions ... same merchandise ... and then make sure that, from a marketing standpoint, you execute every single possible tactic ... everything!  Might be close to impossible, and there's absolutely no proof that sales will increase on an annual basis if you do it (contact me by clicking here if you know of a business that saw a 10% sales increase across one full year by adhering to multichannel/omnichannel strategies).

Omnichannel is like crunchy peanut butter --- you have to have it!

In the parable at the start of this post, the guest still ate breakfast.  He didn't go hungry. 

If you don't employ a thoughtful omnichannel strategy, there's no proof that you won't be as profitable.  None.  No proof that you'll miss a meal.

Instead of being "omnichannel", why not focus on merchandise that your customer needs?  Why is marketing strategy so separate from merchandise strategy?

Gus Johnson

Sports fans either love Gus Johnson, or they love to hate Gus Johnson.

Naturally, opinions were split as Fox pushed Mr. Johnson into football / soccer ... covering the Manchester United / Real Madrid Champions League match this week.

Yes, I have a point that relates to e-commerce.  More on that in a moment.

Mr. Johnson has virtually no experience covering what we call soccer, much less a match at this level of importance.  But look at what this individual did on his way up the ladder:

• On air personality, WAAY, Waco, TX.
• On air personality, WXII, Winston Salem, NC.
• Weekend Anchor, WTTG, Washington, DC.
• Minnesota Timberwolves NBA play-by-play announcer.
• Big East college basketball.
• College Hockey and College Basketball on ESPN.
• Canadian Football League on ESPN2.
• Radio Play-By-Play, New York Knicks NBA Basketball, and TV broadcasting for the NY Knicks, 1994 - 2010.
• Yankees / Rangers pre-game host.
• Pre-Season NFL coverage of the Bills, Eagles, Lions.
• Showtime Championship Boxing announcer.
• Voice of EA Sports NCAA Basketball game in 2010.
• Voice of Madden NFL11 and NFL12 video games.
• Buffalo Wild Wings commercial announcer.
• NFL on CBS.
• March Madness College Basketball announcer on CBS.
• Big Ten Network College Basketball announcer.
• FOX College Football announcer.
• Radio announcer for San Jose Earthquakes soccer team.

Does your resume look like that?  Mr. Johnson isn't even 50 years old yet.

Now, to my point.

In our world, we keep hearing about specialists ... folks who know everything about 3% of a business.

• PPC Marketing Expert.
• Web Analytics Guru.
• Digital Marketing Specialist.
• Omnichannel Thought Leader.
• Social Media Ninja.
• Catalog and Multichannel Marketer.

This is like being Gus Johnson when he covered the Canadian Football League on ESPN2.  You have tremendous depth, but only in a tiny slice of the world.  Mr. Johnson pushed his career in areas where he had no experience ... he gained experience ... and then moved on to new challenges.  This allowed him to gain a breadth of experience that few can match.

Even if you love working in a tiny niche of the total ecosystem (and that's fine), obtain varied skills within that niche.  If you're the PPC expert at your company, go sit down with a merchant and learn about the products your customers purchase.  If you are the social media ninja, sit down with your finance team and learn how to calculate profit.  If you are the digital marketing specialist, sit down with your inventory management team, and learn how they measure success.  If you are the web analytics guru, spend time with your IT team, and learn how they structure databases.

In almost all cases, it is beneficial to gain merchandise knowledge.  More than half of my projects in the past six months illustrate challenges with merchandise and product development ... increasingly, channels are not the reason for success, but instead, merchandise is the cause of success or failure.  Maybe it's always been this way, huh?  

Learn how to measure merchandise performance ... new items, existing items, discontinued items, category performance ... it all matters, and matters more than the performance of marketing channels.

Use Gus Johnson as an example of building a diversified resume, resulting in an announcing assignment at the highest level - Champions League Soccer.  Notice that he did multiple jobs at the same time - use that as an example for how you might manage your career.  Maybe you need to have a small, part-time job that compliments your skill-set.

Thoughts?

But E-Commerce Is Growing, Mobile Is Not Crushing E-Commerce!!!

We live in interesting times.

Almost all of our analytics are campaign-based, point-in-time efforts that horribly mislead us.

Here's an example.  I hear this one, often ...

• E-commerce grew by 15% last year, to $50,000,000.  Mobile, however, is tiny ... it grew by 700%, but is only $3,000,000.  Mobile is nothing.  E-commerce is where it is at.

Might be right, might be wrong.  But this is not how we should look at the issue, is it?

Our old friend, the Migration Probability Table (remember that ... think 2006 - 2007), that old thing tells us the real story.

* Index = In-Channel Rebuy Rate divided by Total Rebuy Rate

If your table looks like this, e-commerce is finished.  No, not finished in 2013, but in the long-term, it's toast.  This table shows us that customers are leaking out of e-commerce into mobile, but the mobile customer is more likely to stay within mobile than within e-commerce.

This, by the way, is exactly what the catalog-to-ecommerce table looked like ten years ago.  Catalog was finished.  No, not dead, but catalog was destined to become the niche-favorite of Judy's generation.  Jennifer was leaking out of catalog into e-commerce.  She never looked back.  Amazon and Google thank her for her patronage.

Now, if your table looks like this, you have a different set of issues:

There are two things that could be happening in this instance.

1. Your mobile experience stinks, so customers don't go back to it.
2. Your customer is older, and doesn't want to stay with mobile, she'd prefer to stay with the channel she is comfortable in.

This is the way tables looked like for catalogers with 55+ year old customer bases, back in the day (i.e. 2003).  Older customers tried e-commerce, didn't like it, and instead shopped catalogs via the telephone.  This happened all the time, and led catalogers to believe they were "right".  And in the short-term, they were 100% right, absolutely.  Today, of course, those same catalogers have a 65 year old customer base that never embraced e-commerce, and they have a 5-10 year window before the whole thing comes crumbling down.

Pundits are going to dip your impressionable frame into a warm bath of mobile body wash.  They're going to tell you what "the customer" is doing, and they're going to scare the living daylights out of you.  They do this to generate page views, Twitter followers, and to enhance their own thought leadership position in the industry.

Don't listen to the lizard logic they spew at you.

Do the analysis yourself (or hire me, click here now).  You will see, immediately, what your future holds.  If mobile is going to crush e-commerce, your table will look like the first table in this blog post.  If mobile is not going to be something that crushes e-commerce, your table will look like the second table in this blog post.

Either way, you'll know the truth, while others speculate.

Don't you want to know the truth?

How Will I Know If Mobile Is Crushing E-Commerce?

Let's go old-school, way back in 2001?  Remember 2001?  Pink topped the charts with "Get The Party Started".  By the way, there was a ton of chatter about e-commerce.

My boss was President of the e-commerce / catalog division at Nordstrom.  He believed that call center sales could continue to grow, in spite of e-commerce.  The data did not support his belief.

To support his hypothesis, he asked me to run a query for him.  He wanted a segment of customers that were "identical", and I mean "identical" in historical quality ... like 4 historical purchases for a total of $600, all generated via the call center.  Then he wanted customers in this segment to make a decision in, say, December 2000 ... half decided to purchase via the call center ... half decided to purchase via e-commerce.  Once this audience was defined (about 2,000 customers out of maybe 1,500,000 twelve-month buyers), he wanted to measure spend across channels in the next twelve months.

His hypothesis:  The call-center buyer who switched to e-commerce would go back to the call-center.

The results:  Not so much.

• Call Center Buyer Switching To E-Commerce = $35 at Call Center, $85 via E-Commerce, in the next 12 months.
• Call Center Buyer Staying With The Call Center = $110 at Call Center, $10 via E-Commerce, in the next 12 months.

This told us that the call center was dying.  It did not mean that catalogs were dying ... though our mail/holdout tests also proved that catalogs, too, were dying.  Mail/holdout tests showed that when the customer switched to e-commerce, the customer started buying without needing a prompt from catalogs.

You should have seen the faces of the old-school folks in the room (many of whom were former Lands' End executives who had catalog marketing in their blood) when these two facts were presented, in tandem:

1. When a customer switched from the call center to e-commerce, the customer spent the majority of future revenue via e-commerce.
2. When catalogs were not sent to e-commerce customers, e-commerce customers purchased anyway.

It's one of those "I can see the future, I don't like the future, therefore, the messenger of the information must be fired" kind of looks.

Few people embrace a message that leads to the logical conclusion that the job that they do is being eliminated by technology.  What would you do if somebody told you that your job, as currently configured, would not exist in a few years?  You might not feel terribly comfortable about the message, right?

This brings me to e-commerce.

In the next five years, there are going to be two camps, each fighting for the future of commerce among Jasmine's generation.  Here they are:

1. E-commerce is part of a complex ecosystem called "omnichannel".  Without e-commerce, omnichannel, and mobile, fall apart.
2. Mobile will reinvent commerce, and may obliterate e-commerce.

You can understand which camp is winning among your customer base by running the query I was asked to run way back in 2001.  Take customers who were loyal e-commerce buyers, segment them, and choose customers who are very equal.  Split them into those who continue to buy via e-commerce, and those who switch to mobile.  Then measure future spend by e-commerce or mobile.  For the moment, ignore all of the pundits who tell you that all e-commerce channels influence mobile and therefore cause you to not be able to run this query ... you're running this query to understand if the physical channel preferred by the customer changes.

If you find that the customer goes back to e-commerce after a mobile purchase, then your business is leaning to the "omnichannel" view of the world.

If you find that the customer stays mobile and doesn't spend a lot via e-commerce, then your business is leaning toward "mobile will reinvent commerce".

By the way, the results of this query change as time progresses.  What we saw at Nordstrom in 2001 did not become apparent to many catalogers until 2005 or 2006.  Keep running the query.  Multichannel was a concept that was temporary ... it only mattered while customers were making a transition, and was apparent only when the transition started.  Almost nobody talks anymore about the critical importance of having a catalog in a multichannel strategy, because the transition is complete.  This pattern of renewal is likely to happen again with e-commerce ... it is currently being labeled "omnichannel".

Don't let the pundits tell you what "will" happen.  Let your customers tell you what "is" happening.

10 Important Questions

Post this article in your cube/office, and see if you can answer each question.

Number Ten = Can I make enough profit after my customer has been with my business for one year, so that I can pay for the cost to acquire the customer?  This question is tough to answer in most analytics packages.  Most people don't know the answer to this question.  Most people are more receptive to this question than "what is the lifetime value of a customer?"

Number Nine = Can I generate enough profit once a new product survives twelve months to pay for new products that fail to be embraced by customers?  Same question as number ten, but from a merchandising perspective.  Most folks don't look at merchandise this way.  It's time we look at merchandise this way.  

Number Eight = Did the new items introduced last year outperform the items your merchants killed last year?  In maybe half of the businesses I analyze, this is a serious issue ... not enough new products are being developed, and the new items being developed do not outperform older items enough to fuel the future of the business.

Number Seven = How has the average age of my customer changed in the past five years? If your customer is aging 0.5 years to 1.0 years for every 1.0 year that passes, well, then you have a problem.  And the faster your customer is aging, the less likely that social / local / mobile strategies will have any impact on your business, further trapping your customer file in the year 1999.  I run into this problem, frequently ... by analyzing data or by fielding calls.

Number Six = Am I overly dependent on a small number of high-performing items?  It's not uncommon to see a business that generates 50% or more of annual sales on 5% or fewer of total items offered.  Tread carefully if this is your business ... it's kind of like putting all of your retirement money in Apple stock.

Number Five = What percentage of net sales flow through to profit (before subtracting fixed costs)?  This metric, called the "flow-through rate", dictates everything marketers do.  This is a great question to ask an interview candidate.  Ask the candidate to guess your flow-through rate, it will tell you a lot about the business acumen of the candidate.  By the way, if you work at a publicly traded company, then the data is readily available in your 10-K and 10-Q statements, so go find out what your percentage is!

Number Four = What will we do to please the customer in the ninety days following a first purchase?  Almost all of my projects show that as many as half of first-time buyers who will ever purchase again do so within 90 days of a first purchase, frequently adding-on items complementary to the items sold in a first purchase.  This is a critical time in the customer life-cycle.  Focus on this timeframe before your competition capitalizes on it.

Number Three = What percentage of last year's purchasers buy merchandise again this year?  This rate dictates your whole business model.  Hint - 70% of my clients have an annual repurchase rate below 40%, and most of these businesses are highly profitable.  A low rate does not indicate a loyalty problem.  Rather, a low rate helps indicate the frequency of the problem a business solves for a customer (see number one below).

Number Two = How will customers learn about the merchandise I sell?  This question is actually very difficult to answer.  It requires a marketer to think.  We know all about tactics (paid search, word of mouth, catalog co-ops).  Not many of us have a holistic strategy for informing customers about the problem that we solve (see number one below), and the path that leads the customer to problem resolution.  This is how we need to be thinking about customer acquisition ... don't call it customer acquisition, call it problem resolution, and see where it takes you.

Number One = What problem does my business solve?  If you were eBay, you might answer "we connect customers looking for hard-to-find merchandise with those who sell hard-to-find merchandise".  How would Starbucks answer this question?  Forrester Research?  Orvis?  L.L. Bean?  Take L.L. Bean, for instance.  What is the problem that they are solving?  Then think about their solution.  Is their solution substantially better than Lands' End, Gap, Eddie Bauer, J. Crew, Talbots, Chicos, The North Face?  What happens to L.L. Bean if the customer no longer has the problem that L.L. Bean solves?  This topic might be worthy of a half-day executive workshop, don't you think?  And I'm not picking on L.L. Bean, because obviously they've figured out the problem they are solving, or they wouldn't have been around forever. I'm asking you to view the question through their eyes, then to translate the thought process to your business.

It's pretty important to be able to answer all ten questions, don't you think?

Dear Catalog CEOs: Clario

Dear Catalog CEOs:

I wouldn't need to address this topic if it didn't keep coming up.

• "We're looking to cut back on catalog expense.  We don't know whether we should choose you, Kevin, or Clario Stream?  The Clario folks sound impressive, but the content on your blog is also impressive.  Help us make the decision."

This is a funny question (came up three times in one day last week).  Most of my clients hire me outright (they call, we talk, they choose me on the spot).  About 25% of my potential clients demand an RFP, then compare me to other vendors.  Frequently, I'm told that I beat Clario, or Clario beat me.

In other words, Clario is my #1 competitor.

How do you treat your #1 competitor?

I'll tell you how to treat my #1 competitor ... hire 'em!!

If your goal is catalog contact optimization, they will do a fantastic job for you.  Clario applies cannibalization rules (if you don't agree with the concept of cannibalization, don't work with Clario, it's the secret sauce that makes their methodology work) to your contacts, at a customer level ... they model customer response, and they turn circulation selection into a turnkey, cloud-oriented process.  They'll make you a fortune.  You'll barely have to do anything.

I've been hired a few times to evaluate Clario's performance.  In each instance, I strongly defended Clario - and remember, these companies could easily have chosen my algorithm over Clario's and probably would have had I not been kind - but if your competitor is doing a good job, you need to praise the competitor, publicly ... it's an outcome of having faith.

There are consistent criteria where companies hire me instead of Clario.  I'll document what those criteria are:

1. Client wants control over catalog circulation, doesn't want a black-box solution.
2. Client wants accurate forecasting of demand at a catalog level, and at an annual level.
3. Client wants accurate measurement of sales driven to retail, paid search, email, online, affiliates, mobile, across different catalog optimization strategies
4. Client wants simulations of marketing/merchandising interactions.
5. Client wants a five-year forecast model that illustrates where a business is headed if major catalog circulation changes are made (by the way, I've been hired to forecast the long-term impact of Clario's decisions ... those are fun projects).
6. Client wants to thoroughly understand the interaction between marketing strategies and merchandise category performance.
7. Client wants to know the % of sales that will still exist online if catalogs are discontinued.
8. Client wants to know the % of sales that will still exist in stores if catalogs are discontinued.
9. Client wants to know the proper customer acquisition investment strategy to grow the business.
10. Client wants geek-free communication ... no technical terms.
11. Client wants to know the impact of pricing strategy on marketing investment.
12. Client wants an easy and actionable "grade" to put in the database ... A/B/C/D/F ... a grade with circulation intelligence built-in.

As you look through the list, something becomes very clear.

• Pick Clario if you want the very best contact optimization algorithm.
• Pick Kevin if you want highly profitable contact optimization algorithms coupled with ad-hoc customized requests, channel knowledge, an in-depth understanding of "why" things happen across channels and merchandise categories, and a forecast of the future.

Either way, you're making a smart choice.  It's really just an issue of what you are looking to accomplish.

Thoughts?

Omnichannel: A Response To The Mobile Threat

There's a great quote in the movie "Moneyball".  Billy Beane meets with John Henry, owner of the Boston Red Sox.  Mr. Henry says this (in the movie), when discussing Mr. Beane's new way of analyzing talent:

• "I know you're taking it in the teeth out there, but the first guy through the wall, he always gets bloody.  Always.  This is threatening, not just a way of doing business, but in their minds, it's threatening the game.  But really what it is threatening is their livelihoods, it is threatening their jobs.  It's threatening the way that they do things.  And every time that happens, whether it is in government or a way of doing business or whatever it is, the people who are holding the reigns, they have their hands on the switch, they go bat s**t crazy."

Ten years ago, this was "multichannel".  Catalogers and Retailers saw the threat posed by e-commerce.  They felt threatened.  E-commerce threatened their jobs.  So, they invented "multichannel".  By forcing e-commerce to be part of the catalog and/or retail ecosystem, they protected their jobs.  This wasn't done because it was right for the customer, for if it were right for the customer, catalogers would have crushed Amazon and eBay, and Borders / Barnes & Noble / Circuit City / CompUSA / Blockbuster would have crushed Amazon and Netflix.  No, this was done to protect jobs.

Today, the phrase is "omnichannel".  E-commerce brands and Retailers see the threat posed by mobile.  They feel threatened.  Mobile threatens their e-commerce and retail jobs.  So, they invented "omnichannel".  By forcing mobile to be part of the e-commerce and/or retail ecosystem, they protect their jobs.

Instead of forcing mobile to be part of an ecosystem (benefiting us), why not let mobile find a future for itself (benefiting the under 40 year old customer)?  While we work on diligently integrating mobile with the rest of the business, making sure pages look great on any device, making sure we track the customer all over the digital ecosystem, somebody age 18-34 will most assuredly invent the future that those who are currently age 18-34 desire.

Discuss.

Gliebers Dresses - An Omnichannel Discussion

As you already know, Gliebers Dresses is a fictional account of an Executive Team struggling with management of the future of a traditional catalog business.  If business comedy is not your thing, then move along, there's nothing to see here.

But if you want to hear the team have an omnichannel strategy discussion with Woodside Research sales executive Ashley Pearson, just click here to download the latest episode.

Channel by Age Interaction

You read these research reports or trade journal articles, and they tell you what "the customer" is doing.

"Your customer", however, is not "the customer".  Your customer is different.  So your mileage varies.

Channels help us understand "your customer".  Look at customers who purchase from your call center.

Tall bars represent channel preference.  Not surprising, then, that June (age = 76) prefers shopping via your call center.  Not surprising, either, that Jasmine (age = 28) and Jennifer (age = 44) don't like shopping over the telephone.  If your business is skewed to the call center, well, guess who your customer is?  If your business is skewed to the call center, what does that mean for the future of your business?

How about online transactions, those not attributed to other marketing channels?

This is hardly surprising, either.  The more your business skews to unattributed online orders, the more likely your business caters to Jasmine, or to a lesser extent, Jennifer.  Dark matter, those unattributed online orders, frequently skew to younger customers.

Here's email marketing.

Email peaks with Jennifer, and there's a bump for Judy.  Notice the dip for Jasmine.  Jasmine is different, as we will see later, her email orders shift to other channels, and for good reason.

The next two graphs are for paid search and natural search.

The two graphs are similar, aren't they?  Search is the realm of Jennifer and Jasmine ... with Jennifer skewing a bit to paid search, Jasmine skewing a bit to natural search.

Yes, your mileage will vary.

Let's look at Affiliates.

The mix is changing, isn't it?  In fact, CSEs look similar to Affiliates.  Jennifer is typically looking for free shipping, whereas Jasmine seeks the lowest possible price and free shipping - remember, Jasmine simply doesn't have a lot of money.  Judy doesn't trust Affiliates as much.

Finally, orders attributed to Social Media.

This really skews to Jasmine, doesn't it?

We keep reading that "the customer does everything", so you must be "omnichannel".

Wrong.

Know who your customer is.

Append age of customer.

Track the channels each age cohort purchases from - as you can see in our example, there are clear trends by demographic cohort.

And yes, your mileage will vary.  I'm asking you to do the hard work, the heavy lifting.  Don't read a survey of 994 likely shoppers and make decisions for 250,000 customers.  Do the analysis yourself.  Determine the channels "your customer" prefers.  Then go after those channels.

Thoughts?  Questions?