Attribution Credit

This quote comes up in various forms, all the time.

• "63% of our orders happen after a customer sees a banner ad or retargeting effort. It's clear that this stuff works."

Alright.

You go in and analyze data, and you see the following trends:

• Prior to retargeting/banners = $3,000,000 a month average.
• After retargeting/banner program is initiated = $3,080,000.

Now, you can use control groups to measure your retargeting/banner efforts, but that's no fun when you demonstrate that you didn't generate much volume ... it's better to hand the problem off to an attribution vendor who gives retargeting/banners credit for $400,000 in monthly volume.

In theory, we're trying to prove that our investments work.

Sometimes, I wonder if we're trying to prove that we're valuable?

We are valuable.

I know, it's difficult, because you have a merchant who is under tremendous pressure, and is afraid s/he will be fired.

It's difficult, because the creative team never has quantifiable metrics to prove that their work matters, so they want to make sure that marketing brings them the right traffic - they didn't screw up, marketing screwed up.

It's difficult, because IT strongly believes that a trained monkey could run marketing. I've been in the meetings.

It's difficult, because operations browsed an article in a trade journal about best practices, and wants to know why your department won't employ best practices? I mean, they're "best", right? Don't you want to be the best? Are you stupid? And operations paid for a Woodside Research report, and the report suggests marketing is stupid, so marketers are stupid.

It's difficult, because half the Executive Team is going to get fired if sales don't improve, and they cannot change the merchandise assortment for at least another half-year ... they need marketing to act, NOW!

All that pressure trickles down to marketing.

Is it any wonder marketing wants to prove that they touched every single order?

And the vendors need to prove that everything marketing did touched every single order, because that's how vendors get paid. It's hard to blame anybody.

Too often, attribution credit is a function of pressure, and is not focused on genuine measurement of return on investment. How could it be?

Try to remain unbiased. I know, it's hard to do, but it is necessary.

Retail Inflection Point

If you want to know how important your store is to your "omnichannel mix", perform this very simple analysis:

• Segment Annual Demand (Retail, Website+Phone+Mobile) by Store Distance.
• Calculate the Percentage of Demand Within Store Distance Band Attributed to Stores.

Here's an example:

• 0 to 5 Miles = 77% Retail.
• 6 to 10 Miles = 62% Retail.
• 11 to 15 Miles = 51% Retail.
• 16 to 25 Miles = 46% Retail.
• 26 to 50 Miles = 40% Retail.
• 51 to 75 Miles = 30% Retail.
• 76 to 100 Miles = 25% Retail.
• 101 to 150 Miles = 22% Retail.
• 151+ Miles = 20% Retail.

Here, the inflection point is at 16-25 miles from a store. That's where the customer switches from retail purchase preference to e-commerce purchase preference. 

There are three important pieces to this analysis.

1. The retail businesses with the best long-term potential generate 50% or more demand in retail as far out as 100 miles from a store.
2. The best retail businesses maintain a constant ratio over time ... meaning that if 40% of sales come from retail at 26-50 miles from a store, the ratio generally stays near 40% over a 2-3 year period of time. If the ratio skews wildly toward retail, or toward e-commerce, then one of the channels is having a problem.
3. The best retail businesses generate 90% or more of sales in-store for customers within five miles of a store. If a customer lives 2 miles from a store and chooses not to visit the store, how compelling can the in-store experience be?

What is your retail inflection point?

Macy's Allegedly Drives $6 In-Store Demand Per $1 Of Search Spend

Yup, click here folks.

We learned this at Nordstrom, way back in 2004-2005 (hint - that's what happens when you have a good database and staff dedicated to measuring store/web dynamics) ... technically, we learned that we drove at least as much volume in-store with search as we drove online. Once you learn that, you invest your money differently. In fact, you can kill a catalog division and not lose sales once you know a fact like that.

Now, this is assuming that the article reflects reality. There are MANY reason to think that the article is biased.

• The theme of the article shifts from Macy's to a survey to quotes about Google, an organization who significantly benefits from increased search spend.
• The basis for the findings in the article is a survey of 6,000 individuals. That's nonsense. Both Google and Macy's have millions/billions of individuals to measure reality from. Why ruin that to talk about how 6,000 individuals behave?
• There are numerous research organizations that are part of the research - stuck in between Macy's and Google.
• Trade journalists need to make money too - think talking about Macy's and Google attracts eyeballs?

In other words, the analysis is likely to be directionally accurate, and thoroughly biased all at the same time.

The article reflects everything that is right about analyzing data and making good decisions, and everything that is wrong about power, eyeballs, attention, and monetizing outcomes.

How Do I Know I Have A Lapsed Buyer / Reactivation Problem?

Here's one of two queries I like to run to identify customer reactivation / lapsed buyer problems.

Step 1 = Identify all customers who purchased in September 2014.

Step 2 = For all customers who purchased in September 2014, count the number who are not first-time buyers, and who had not purchased in the twelve months from September 2013 - August 2014. This is the number of customers who are "reactivated".

Step 3 = Re-run this query, shifting all dates back exactly one month. Count the number of reactivated buyers.

Step 4 = After running this query, going back in time several years, calculate the difference in the number of reactivated customers, year-over-year. For instance, if there were 900 reactivated customers in September 2014, and there were 1,000 reactivated customers in September 2013, then you have (900 / 1,000) - 1 = -10% change in reactivated buyers.

The image above is what I see, repeated over and over again for catalogers, and for retailers. In the past two years, the sky is falling. In retail, the more we encourage customers to sit at home and use devices, the more we're going to see this outcome. In cataloging, the more we ignore customers under the age of 50 by offering merchandise that appeals to customers over the age of 50, the more we're going to see this problem.

First, run the queries and quantify if you have a problem. Or contact me (kevinh@minethatdata.com ... pricing details are found by clicking here) and I'll run this for you. This query yields results, folks, helping explain why lapsed buyers and new buyers are the Story of Fall 2014.

Grumbling About Amazon

In Madison, about 80,000 fans pack the stadium (students pack it a bit after the 11:00am starting time, but whatever), paying a lot of money to attend a game that is being freely televised across the country.

Oh, I know, you're going to nitpick this, telling me it is only available on certain cable systems or satellite providers. Fine, point taken.

Have you ever looked at what it costs to purchase football tickets? Click here, it's an expensive proposition. You have to pay a "contribution fee" that is several hundred dollars, just to earn the right to purchase season tickets. That's like paying Gap $49 for the right to purchase chinos.

Then you're looking at $420 per seat, for seven home games.

What if you want to buy season tickets for you, the spouse, and for little Timmy and Gemma?

• $420 x 4 = $1,680.
• A $200 contribution fee, which allows you to spend the $1,680 in the first place.
• Total = $1,880.

Or you can watch the games, at home, for free.

For free.

So why are at least 70,000 people (80,000 for conference games) filling the stadium seven times each fall? Fans could put this money to better use elsewhere, right?

Sports teams are able to get you to come to their retail channel (the stadium) to pay a lot of money for something you can do at home, for free. Obviously, the entertainment experience provides an emotional benefit greater than the cost required to obtain the emotional benefit.

Back to Amazon.

Amazon is like watching a football game on TV. It's easy. Given the choice between the customer having an easy experience on your website (or in your store), or an easy experience on Amazon, the customer will choose Amazon. Think especially about your retail store. Is the customer amazed, dazzled, sort of like when the customer walks into Cabelas or an Apple store? Or does the customer have eleven different, boring choices to buy chinos?

Be honest ... when is the last time you got an energy rush buying a t-shirt in a retail store? Or online?

So grumble about Amazon all you want. Have at it. But think carefully about the source of your grumbling. Amazon does "boring" better than almost anybody else. They've cornered the market on boring. You're not going to compete with them, they do boring better than you. 

Either you sell something Amazon doesn't sell, or you give the customer an adrenaline rush, much in the same way sports teams do. The latter is terribly hard work, it's expensive, and it has a much lower probability of success. But ask yourself what the probability of success is competing on boring?

Often, Existing Customers Hate Change

I'm frequently disappointed that some vendors believe that my clients are complete idiots who are unwilling to change, as if vendors are flexible organizations that change at the drop of a hat.

There are times when change is possible. There are times when the customer refuses to let you change.

I think back to my time at Nordstrom. We killed off a $36,000,000 catalog business. This business had a merchandise assortment that evolved toward a 55+, rural customer ... a customer in stark contrast to the suburban/urban retail shopper that thrived in our stores.

When we killed the catalog business, half of the customer based that would have kept shopping via catalogs simply quit shopping with us. My team measured the results. A 65 year old customer in Fargo got really, really upset when we asked her to change. She refused to change. She wrote us letters, telling us how stupid we were, telling us how our customer service ethic went down the drain because we stopped selling what she wanted to buy. She didn't come back, period. If she were our only customer, then we would have changed, and we would have died (contrary to the message above).

It is so very, very hard to change when your existing customers do not want to change. My Nordstrom experience was positive, because we had seven million customers who liked what we were doing, and we had five hundred thousand customers who hated what we were doing. We found a way to get the seven million to spend more (online), to offset the five hundred thousand who quit buying our merchandise.

Your business is probably not so lucky. Maybe you have 200,000 twelve-month buyers, and when you make a change, 20,000 like it and 180,000 do not. Ooops!

It's easier to change when you have a broad merchandise assortment and a diverse customer base that buys across many categories.

It's very hard to change when you have a comparatively narrow merchandise assortment and a homogeneous customer base buying from a small number of categories.

Omnichannel = Store Closures

Did you read this little ditty (click here folks)? The article is about Pier 1 and their "omnichannel guideposts".

Read the second paragraph within Guidepost #2. Heck, I'll quote it for you:

• "... with approximately 60% of its leases coming up within the next three to four years, the retailer can carefully evaluate real estate needs and adjust the size of its store portfolio accordingly. Each store and market will be reviewed to determine the appropriate number of stores to maximize market share and optimize profitability."

The quote may as well read something like this:

• "Thank God 60% of our leases are coming up, because we're going to close a ton of stores in poor locations and ask the website to carry an ever-increasing level of responsibility. We only want to keep the very best stores, and we want to unload the junk before the rest of the industry wakes up and realizes they have to do the same thing."

Omnichannel is headed toward a very interesting and unanticipated outcome.

Great retail locations are always going to be great retail locations. Lousy retail locations, however, are experiencing a different dynamic. The great location has an "entertainment draw" that keeps traffic flowing. It's fun to be at a great location! The lousy locations, however, do not have the same buzz. And if the individual store does not have buzz, and does not sell product that requires a store visit to complete the purchase, well, then e-commerce can (in theory) do a better job. When e-commerce can do a better job, then the store no longer serves a purpose.

Therefore, the bottom 30% of the retail portfolio is "at risk" in an omnichannel world. The best locations warrant the investment in infrastructure. The bottom 30% of the retail portfolio experiences slow leaks in demand from stores to e-commerce, and eventually, the bottom 30% of the portfolio is at or below break-even. Why would you invest in the omnichannel infrastructure in stores that are at or below break-even? There will be CFOs that look at the numbers, and say, "we're closing these stores, it's up to the website to pull more weight."

One problem.

If you close a store in a single-store market, you lose 80% of the volume. If you close a store in a multi-store market, you lose 60% to 70% of the volume, your mileage will vary. 

The logical outcome of the omnichannel revolution is this: E-commerce will gain share in cases where there is no entertainment value in the retail experience. This will ultimately lead to a rationalization of the bottom 30% of the retail portfolio, and once those stores are closed, sales will be lost (just like when Borders closed, that demand did not flow to Barnes & Noble - some of that demand floated to Amazon, most of that demand disappeared).

A lot of stores are going to close. You're going to have omnichannel to thank for it.

Sitting At Home: The Problem With Retail

The story of the Fall is the inability of businesses to acquire new customers, and the inability to reactivate lapsed buyers.

It's a catastrophe in retail.

We have spent a full decade teaching the customer that they do not have to get in a car and drive to a store. From 2000 - 2009, it was all about "being multi-channel", which was code for "make sure the website integrates with the retail store experience." Retailers dove in, head-first. Today, it's crazy to think about a retail website that provides a fundamentally different creative and merchandising experience from the store.

This level of integration, of course, came with a caveat.

• "If the website offers the same merchandise and the same prices as the store, why should the customer get in a car and drive to a store?"

Nobody bothered to provide an answer to that question. I've been in the meetings. You should see the blank stares one gets when one asks that question.

We're now seeing the consequences of not being able to answer that question.

Retail is a habit.

In other words, it takes hard, hard work to encourage a customer to visit a store all the time. You're asking the customer to give up an hour or two of time, battling traffic. In e-commerce, you're asking the customer to give up 10 minutes while sitting in a recliner. 

Which is the path to least resistance?

By encouraging the customer to sit in a recliner and shop online, we broke the customer habit of visiting a store. It took years to break this habit ... and as it became obvious we were breaking the habit, we tried to patch the pothole with discounts and promotions.

So now we've got a problem of our own creation. We told the customer to sit at home. Now we want the customer to sit at home researching our merchandise, and then we want the customer to get in the car and drive to the store. We want the customer to spend more time with us, but we give the customer no reason to spend more time with us.

It will take a decade for us to re-train the customer. By then, stores will be closed, brands shuttered.

Omnichannel!

It is time for imagination. Imagination, and only imagination, can be used to retrain the customer to visit our physical stores.

In other words, we're not going to fix lapsed customer and new customer problems with tactics. We're going to have to imagine our way out of the problem we created.

Why Can't I Reactivate Or Acquire Customers Anymore?

The theme of the fall is this:

1. It has become really difficult to acquire new customers.
2. It has been difficult to reactivate lapsed buyers for a couple of years now.
3. Consequently, the customer file is being starved.
4. If the customer file is being starved, it is going to be really hard to grow in the future.

In catalog marketing, it is now clear why it has become so hard to acquire new customers.

1. The cataloger focused on a 50 - 75 year old customer ... and has for the past decade.
2. The co-ops spun 50 - 75 year old customers to catalogers "at scale", creating an unprecedented level of laziness and comfort among catalogers. It takes almost no work to order 1,000,000 names from a co-ops.
3. Today's 50 - 75 year old customer was a 40 - 65 year old customer ten years ago ... and the younger half of that generation from ten years ago learned how to shop online. Today, those customers shop online, via online marketing (hint - Amazon), and are not responsive to catalogs like the half-generation ahead of them still respond.
4. Therefore, the co-ops still spin a 50 - 75 year old customer, but a third of this audience (those age 50 - 60) lean toward the online channel, and consequently, do not respond to catalogs like those age 60 - 75.
5. Catalogers, in a thirst to be multi-channel / omnichannel, aligned the whole business around the 60 - 75 year old customer. This means that the merchandise they sell is preferred by customers age 60 - 75, further shutting out younger customers.
6. As a consequence, catalogers need co-ops more than ever for access to older, rural Americans, creating increased competition for the 8,000,000 names that the co-ops routinely spin at catalog brands, lowering response further.

The result is a looming catastrophe, one nobody wants to talk about or acknowledge.

Here's how the catastrophe develops.

• Say you have 100,000 12-month buyers, and a 45% repurchase rate.
• Say you convert 30,000 reactivation candidates to a purchase.
• Say you acquire 25,000 new customers, annually.
• Next year = 100,000 * 0.45 = 45,000 + 30,000 + 25,000 = 100,000 customers next year.

See, that looks ok, right?

Here's what I'm seeing in 2014:

• 100,000 12-month buyers @ 45% repurchase rate = 45,000 customers.
• 25,000 reactivation candidates (down 17%).
• 20,000 new customers (down 20%).
• 2015 File = 100,000 * 0.45 + 25,000 + 20,000 = 90,000 customers.

And here's what that means by the end of 2015.

• 90,000 12-month buyers @ 45% repurchase rate = 40,500 customers.
• 23,000 reactivation candidates.
• 18,000 new customers (down 20%).
• 2016 File = 90,000 * 0.45 + 23,000 + 18,000 = 81,500 customers.

This is the dynamic that is developing.

I've analyzed 29 catalog businesses this year. This is the overriding theme.

1. A twenty-year partnership with the co-ops now results in utter dependency upon the co-ops for new names.
2. The co-ops are spinning 60-75 year old names at catalogers at scale.
3. 60-75 year old customers love merchandise targeted to 60-75 year olds.
4. Names 50 and younger do care about the merchandise targeted to a 60-75 year old customer.
5. This causes the merchandising assortment to evolve faster-than-average, toward the 60-75 year old customer.
6. Therefore, individuals age 40-59 do not respond to the merchandise assortment, when sent a catalog. This forces down reactivation rates, and new customer response.
7. Co-ops respond by further optimizing models for 60-75 year olds.
8. Catalogers respond by mailing more 60-75 year olds.
9. 60-75 year olds receive an ever-increasing number of catalogs, further diluting response.
10. Customer files begin to shrink.
11. Smaller customer files mean the co-ops have fewer names to spin back at catalogers, thereby further diluting performance and increasing competition and reducing response.

This is why so many (not all) catalogers are struggling so mightily in 2014 to find new+reactivated customers.

And e-commerce fanatics ... your time is coming ... mobile is going to ultimately create a similar dynamic in your world. Mobile is siphoning off customers < age 30. Give that trend a decade, and see what happens.

The Biggest Story Of The Fall

The biggest story of the fall, to date, is the inability of so many e-commerce, retail, and catalog businesses to reactivate customers, or to acquire new customers.

It is an epidemic, folks. 

You keep asking me if your situation is unique.

Your situation, my friends, is not unique.

Catalogers, known to grumble with the best of them, are rumbling these days about the "collapse of the co-ops". I hear the questions all the time ... "The co-op business model literally forced me to use them, and now, performance is awful and nobody will help me. What happened, and how I can fix the problem?" Hint - you're not going to fix the problem. This is a consequence of incremental decisions made for twenty consecutive years. It can't be fixed by asking your co-op "big data modeler" to "do better". Co-ops are a symptom of a bigger problem ... catalogers have been cut off from customers < age 45 ... so the co-ops spin you the same 65 year old names over and over, to all catalogers, deflating response and exhausting the customer at the same time. Going forward, you should be asking the co-ops to pay you for names, given the profit some of these folks make off of your data when your data is sent into the mobile/social ecosystem.

Retailers know that core customers are hanging in there, but reactivation segment repurchase rates are bad, and new customer counts are falling. The common theme, one that makes the vendor community a ton of money, is to simply be more "omnichannel" ... as if the real problem is that a customer doesn't want an item shipped to her house but would instead prefer to do all the work herself and buy the item online and then get in a car and waste two hours picking up the item. If these omnichannel tactics truly worked, then wouldn't new customer counts be exploding ... and wouldn't customer reactivation efforts be at all-time highs for effectiveness? The real problem is that we spent the past decade telling customers to not visit our stores. We told our customers, over and over, to sit at home and "browse". After 3,650 days of browsing (10,000 hours?), we trained the customer to sit at home. Now we wonder why customers won't get into a car and drive to a store? We did this to our customers and prospects, it's our fault. 

Omnichannel!!

In e-commerce, folks are learning just how hard it is to reactivate a customer when all you can do is email the customer or send messages in apps. Customer relationships, or the lack of them in e-commerce, are hurting e-commerce reactivation activities. Have you ever analyzed what happens to a first-time buyer at an e-commerce-only brand? Try it sometime. I get to see it every day, and it's not pretty.

It doesn't take a rocket scientist to know that if you cannot reactivate customers, and you cannot acquire new customers, then you cannot have a healthy business.

This is the story of the fall. You won't read about it in trade journals, and your favorite vendor will never talk about it, because they don't analyze the data in a way that allows them to see that this is happening ... it's impossible to see this issue if all you do is try to allocate affiliate orders on a mobile phone back to the retargeting ad that caused the behavior to happen ... and it is most certainly impossible to see this dynamic in your web analytics package.

Three unique business models (cataloging, e-commerce, retail) ... all dealing with the exact same problem. This problem cannot be solved by Cyber Monday promotions. This problem cannot be solved with brilliant attribution algorithms. This problem most certainly cannot be solved by omnichannel. This problem can, however, be solved by your own marketing and merchandising efforts. We're all going to have to refocus on to stuff that matters, or in 2015 and 2016, our businesses will shrink.

Returns

Some of you sell widgets, and nobody ever returns widgets. That's a good thing. You picked the right business model.

The rest of us deal with returns.

On the surface, you want to do everything possible to prevent a return. You lose the sales associated with the return, and you are dinged five bucks or ten bucks for shipping and/or warehousing fees. Your CFO sure doesn't want you encouraging customers to return merchandise, now does she?

When you do the math, however, you learn two very interesting things.

1. Returns act as a "mini-order" if the customer exchanges the item for something else. In other words, if the customer spends $100, keeps $50, and exchanges $50 for another $50 item, the net of $0 in the transaction is offset by a "mini-order" of $50 ... the customer performs more like a 2x buyer spending $150 than a 1x buyer spending $100.
2. In almost every business I analyze, you have an eight-to-twelve week window to encourage a customer to buy again ... then the customer slowly becomes inactive.

So use the opportunity to encourage any communication with the customer in the weeks after a purchase.

And if you're really concerned about returns, then stop emailing customers who return merchandise all the time!

Diagnostics: What Do I Do About The Results?

It's easy to create a system for diagnosing business challenges.

It's not easy to communicate the results in a digestible way, without offending people.

Therefore, try to stick to the facts. It's perfectly reasonable to say that the business is not meeting expectations, and to show why. Try to stay away from opinions like these:

• "Your merchandising team really butchered the past three years, didn't they?"
• "You need to shift to an omnichannel business model or you'll be out of business in a few years."
• "Your business model is so old-school that you need to digitize or die."

Stick to the facts. Take our example from earlier this week, for instance:

Stick to the facts.

• Comp customer performance is down from two years ago, and though it rebounded some last year, it rebounded not because of more customer loyalty, but because of a slight increase in spend per customer (did discounts/promotions drive this behavior)?
• Customer productivity dropped at the same time that productivity in the Kids merchandise division dropped. What decisions were made in the Kids division, and why were those decisions made?
• Customer productivity in low price pints dropped dramatically. This is not entirely due to the Kids division. What was the business strategy surrounding changes in price points?
• You are not observing declines in Mens, Womens, or high price point items. Good job!
• New item productivity is down. Is this because of Kids?

At this point, prepare for some blowback. People, especially those accountable for the problems, are going to get defensive. It's just human nature. Merchants will quickly blame marketers for not promoting the top-selling items enough. The CEO will get defensive because she made decisions that backfired. Try to keep folks focused on the data, and not on opinions.

In my projects, I try hard to get these facts out there, in the first 1-2 days of a project. There's no sense in delaying the story - get the story out there, and let there be discussion. You'll find that folks will ask questions, and those questions will make any subsequent work you do that much better.

Buying an iPhone 6 - Omnichannel!!

Your business is probably in lock-down ... your IT team won't let you do anything, in an effort to "protect the business" through Christmas.

Other businesses are at the whim of technology. Imagine having to forecast the sale of tens of millions of iPhones? Good luck getting that right. No amount of genius can allow anybody to accurately forecast that kind of demand.

So when I visited my local mobile phone provider on Monday, I, too, wanted to upgrade one of the phones in the household to an iPhone 6.

Step 1: Upon entrance, I was greeted by a tablet-toting employee. I told the employee I wanted to trade in an iPhone 4s for an iPhone 6 - 16gb. I stated the color I wanted. My name was logged, and I was told that it would take 30 minutes before somebody could chat with me. Alright.

Step 2: 42 minutes later, an earnest employee greets me. He asks me what I want - I again communicate the iPhone 6 color/storage request. He nods his head, apologizes for the long wait, and then communicates that the iPhone 6 is sold out. He offers to order one for me, online. I offer to go home and order it myself. He again offers to do the work for me, given that I stood in line for 42 minutes. But I've just wasted 42 minutes, plus travel time, and there's no way I am wasting another 20 minutes while being up-sold on tablet choices.

Now, the omnichannel community once again clinks their champagne glasses in celebration, for #omnichannel has saved yet another sale. They cheer the "bricks 'n clicks" dynamic that resulted in a purchase. They love the fact that inventory systems could get the customer what the customer wanted.

Are these folks right? Of course they are right.

But the whole thing is simple mudheaded nonsense, and you know it is.

Omnichannel creates a severe disincentive to ever visit a store. Why should I ever visit again and spend 42 minutes staring at a Bose wireless speaker that intermittently plays a selection of Maroon 5 tunes to be disappointed by sales staff that already knew the phone was not in stock and allowed me to stand there like an idiot?

Omnichannel is killing retail. Omnichannel, and distant relative Multichannel encouraged customers to use the website, and now mobile, to never have to set foot in a store again. Unless the store has a special purpose that cannot be replicated online, describe the reason why the customer should ever visit the store? Be honest!

In my case, the sales staff voided any omnichannel benefits by making me wait 42 minutes to obtain information they already knew ahead of time. Now, mobile phone carriers don't make real money in retail anyway, so I'm sure they don't care. But I care. And you care. And your business probably has similar situations where you are encouraging customers to never visit your store again. What happens when you've convinced half your audience to never, ever visit a retail store again? How do you cover the fixed costs of that store?

Discuss.

Diagnostics: Rapid Identification Of A Problem

If you employ a reasonable system, then you should be able to quickly identify the problems plaguing a business. You won't identify the problems analyzing conversion rates, measuring engagement, or through A/B testing. You have to have a system.

Let's look at a business. Tell me what you see happening with this business:

What do you observe?

• The file is shrinking (100,000 to 110,000 to 103,100 to 95,647).
• Annual demand is shrinking ($18.1 to $17.1 to $16.5 million).
• Repurchase rates are sinking (40% to 36%, then a bit of an uptick to 37%).
• Spend per purchaser remained constant, but then blipped up among existing customers in 2014.

We can easily see that this business is struggling. Now, clearly, Management would already know that the business is struggling, but your job is to diagnose the problem using your unique system, and your unique system is showing new customer problems (canary in the coal mine) and is showing repurchase rate problems (that's usually a symptom of a merchandising issue).

We move to a comp segment analysis next.

Well, the story becomes clearer, don't you think? What do you observe?

• All of the productivity declines are from the Kids division, which appears to have experienced an abrupt decline in items offered in the past two years - why else would productivity drop so significantly?
• Notice that $0 to $20 item productivity declined significantly. You can't pin this entirely on Kids, can you - just look at the dollar magnitude of the drop?! The new item column experiences a significant drop in productivity as well, while existing items actually show a modest increase in the past year.

This is not a marketing issue. This is clearly an issue with the Merchandising team, specifically, their decision to cut back on Kids merchandise. Customers did not reallocate spend into Mens / Womens, they just but back on spend, period. And the Merchandising team made a decision to cut back on inexpensive items - causing some demand to flow back into expensive items, but not enough to make up the difference.

Your "system" should be able to quickly dissect the business problem. You cannot do this if you're looking at campaigns or conversion rates. You have to have a system that allows for a longitudinal view of the business.

Subject Lines Work, And One Really Odd Trick To Turbocharge Response

Are you as tired of misleading subject lines as I am?

Unfortunately, subject lines work. People can be manipulated.

I've purposely written different styles of subject lines over the past three months, to see what impact subject lines have on readership.

These posts attracted an audience 40% above the average - what do you observe about the subject lines?

• Forrester Research Annual Report.
• Buzzwords With Marketing Expert Vic Montana.
• E-Commerce As A Percentage Of Total Retail Sales.
• My Hypothesis.
• Is My Store Losing New Customers?
• Nordstrom Omnichannel Expenditures And What It Means For Your Business.
• Think About The Future.
• Shifting To Mobile.
• Have A Plan.
• Conversion Rate.
• Matthew McConaughey.
• What Is The Next Big Tactic? (And One Shocking Reason Tactics Don't Work).

These posts attracted an audience 40% below the average, they were duds - what do you observe, after reading the subject lines?

• Peak Merchandise.
• Quantity vs. Quality.
• Best Buy.
• How Can I See A Feedback Loop Forming?
• Demographics And Feedback Loops.
• Sandbagging.
• Forecasting Assumptions.
• Diagnostics: When Merchandise Is A Problem.
• Diagnostics: How Management Responds To Changes.
• Direct Marketing Association Annual Conference Discount.

The "Sandbagging" article alone should be worth 2% to 4% of annual pre-tax profit - seriously. And it was a complete dud. But there's no need for your business to make money when you can read a blog post about Matthew McConaughey, right?! 

One really odd trick to turbocharge response? Stay away from boring topics that generate profit for clients.

Of course, I'm being silly - I'm not going to change how I write subject lines. But I thought you might like to see actual data that illustrates that if views are important to you, then subject lines are important to you.

Paying clients and teaching readers are important to me. The correlation between subject lines and paying clients is poor, FYI.

What Is A "Hook"?

Look at my visit to the Progressive Insurance website? Who do you see depicted?

That's Flo! You know that because you've seen ads featuring Flo somewhere just shy of 34,000 times in the past few years. She's their marketing "hook", the tactic they use to obtain your attention.

Sort of like "Nationwide is on your side".

Or 15 minutes can save you 15% or more on your car insurance.

In other words, the insurance industry understands the importance of a "hook".

There are other effective "hooks", like this one from Paul Fredrick.

In their case, magazine ads coupled with a great deal ... that's a "hook".

This is also a hook, I suppose.

The problem with this hook is that too many companies utilize it, and when too many people utilize it, the effectiveness of the hook is diluted - you lose profit and nobody cares, all at the same time.

Catalogers are constantly contacting me ... "How can I get better response from the co-ops, the co-ops are killing my business in 2014!" Why are you dependent upon the co-ops in the first place? Do you put 70% of your retirement investment in Sears stock?

What is your marketing hook? Is it a spokesperson? A cartoon character? A great item at a great price? Incessant discounting? Customer service? Free shipping (product shipped in 24 hours) and free returns, like Zappos? An Amazon Prime clone? An app ecosystem like the one Apple nurtures to get folks to keep using their phones?

If you don't have a marketing hook, well, then you at the mercy of the vendor partners you decide to work with, you are simply relegated to mechanical tactics.

When a catalog leader contacts me with a business performance question, I usually ask what their "hook" is? Most often, I don't get an answer, which, ultimately, is the answer to why business isn't great.

Direct Marketing Association Annual Conference Discount

Many of you plan on attending the Direct Marketing Association conference at the end of the month. How much did you pay to attend?

In the days leading up to the 2013 conference, the DMA offered me 50% off if I were to attend.

Back in December, I received an offer from the Direct Marketing Association for $600 off the 2014 conference. I contacted the DMA about the $600 discount, their response is outlined below (name blocked out - no need to get the individual in trouble).

The recommendation is that I should take advantage of the discount, because they were not planning on offering any more steep discounts after the New Year.

And the DMA kept their word, all throughout 2014. They stair-stepped their discounts down to $300 through early July.

Guess what happened yesterday (October 8), a few short weeks before the conference begins?

I am not a fan of lies.

You pay the DMA a lot of money to represent you in a fair and consistent manner. You have every right to ask for a refund of the difference between the discount I received, and the discount you earned when you registered for the conference.

The DMA is telling you to "Change or Die":

It is fair to ask the DMA to change their pricing tactics.

Bloated Inventory Levels

Articles about retailing, e-commerce, and cataloging frequently mention inventory levels. If you are managing a failing business, customers aren't buying merchandise at the level of expectation of your merchandising/inventory team. This requires you to liquidate merchandise at, say, 40% or 50% off. This destroys profitability in the short-term, and it destroys the customer base in the long-term (customer is now trained to pay $29 for a $49 item).

So it's easy to talk about inventory levels, and it is easy to beat up the merchant in this cartoon - it's her fault.

You have two problems when inventory levels are bloated. Trust me, most in the organization are focused on the first issue - getting rid of the stuff that isn't selling.

The second problem can be solved by everybody, yes, everybody. Everybody can fix the business for the upcoming year. Here's a starter list:

• Buy conservatively - if business has been trending -10%, you forecast negative growth next year. Oh, I know, that creates a whole bunch of fixed cost issues ... so communicate your plans clearly ... but what you're fixing here is next year's inventory problem. You won't be bloated next year.
• Plan the marketing budget accordingly. This might be a place to over-spend, especially if inventory is planned conservatively ... you'll be much more profitable without all that liquidation activity, so spend that money on marketing to find new customers who will appreciate your new merchandising direction.
• Carefully analyze the customers who buy from your new merchandise assortment. Are they your core customer? Are they new customers? When they buy from the new merchandise assortment, do they cross over and buy the product that failed in prior years, or are they switching permanently? And I realize these questions are futuristic - but you can also analyze the same issues in reverse in the current year - so do it and figure out any success story you can find - NOW!
• What are customers buying at above-average rates? In the short-term, capitalize on those items in email marketing. Next year, have an email marketing plan for new items that are working ... think of it like a tournament, and as new items start to win, you advertise the living daylights out of them. Your marketing team is now there to support the merchandising team, these are desperate times, get busy!!
• Reward anybody who sells through product. Of course, you don't want buyers seriously underbuying product, but you must set up a reward structure that focuses everybody on the goal of selling through merchandise.
• Align each buyer with somebody in marketing. The marketer is accountable for supporting the buyer. The buyer is responsible for teaching the marketer who should buy the product and why.
• Experiment with social media. We all know that if your customer is > 35 years old, you're generating close to $0 via social media, so there is no risk here ... at all!! Experiment in areas where you have no risk.
• Get your rear end in the mall, and document everything your competition is doing. Document pricing, document creative strategies, presentation strategies. Watch what customers are doing. Then adjust your tactics accordingly. Your competitive intelligence team should not just be producing Powerpoint slides - no - they should have your merchants, creative folks, and marketers with them on field trips into the mall.
• Ignore all theory. Who cares about trying to steal market share via omnichannel strategies? You are trying TO STAY IN BUSINESS! The last thing you need are strategists pushing an agenda that benefits the strategist. Fix the basics. I worked at Nordstrom when the basics were fixed ... there was no need for strategy, profit rained down from the sky when the basics were fixed. I also worked at Eddie Bauer in the 1990s when basics were ignored and theory dominated the discussion. That didn't work.
• This is not the time to try "aspirational creative designed to inspire the customer". That's for two years from now. For next year, go with what you know works, plain and simple. If your boat is taking on water, you don't spend time talking about what a $2,700 GPS system might do for the boat, you stop the leaking.

I know, you think I'm babbling, but that's a simple and small list. Get busy! Bloated inventory levels destroy businesses ... I worked at Eddie Bauer in 1999 when we had a 3% sales drop in our online/catalog division and posted record profit because we patched all the holes. I know, I know, you want to be "strategic". When inventory levels are bloated, there's no time to be strategic. Nope. Instead, you must spend a year fixing things, you must spend a year being disciplined. Do that. Now.

Diagnostics: Why Merchandise Matters

Too often, marketers and analysts don't like merchants. 

This happens for a good reason, of course. Have you ever been in a meeting with a merchant? Nine minutes into the meeting, you're being inundated with "trend right" dialogue surrounding the fall merchandise assortment. You're skeptical, of course, because sales are 8% below plan. So you chime in with semi-helpful comment like "well, maybe we shouldn't have reduced skus" or "turtlenecks sure aren't trend right, now are they?"

You quickly learn that it is time to duck under the table, in an effort to insulate your skull from the forthcoming concussion.

You thought your comments would be helpful. Now you are being told that you should never pay more than $0.39 for a non-branded Chino keyword because we don't want to acquire customers like that because we'd rather sell the customer wear-to-work and not casual weekend wear. You're biting your lip, because now you are curious as to why we even sell casual weekend wear if we'd rather not be selling it? But you don't dare say anything after the verbal peppering you just endured, especially given how everybody else in the room failed to offer you cover.

From that point forward, the merchant elects to ignore you ... and you elect to ignore merchandise. You focus on omnichannel issues, you A/B test the big orange button coupled with a 20% off message against a small blue button with a free shipping message. Pretty soon, entire conferences are organized around every possible digital strategy that doesn't include selling merchandise.

Merchandise matters, of course, because it is what the customer purchases. And when business is not meeting expectations, it isn't because of your $0.39 payment threshold on non-branded Chino keywords. When business is not meeting expectations, it is highly likely that the customer doesn't like the merchandise offered, or doesn't like the way the merchandise is being presented. That's it.

I'm 25 for 30 now ... a readily apparent merchandising issue has been identified in 25 of the past 30 Merchandise Forensics projects. And yet, my inbox is full of comments from readers like "is there a better way to leverage organic search in a world where organic reach on Facebook is no longer viable?"

Go analyze merchandising issues. Merchandise matters! Don't worry about the repercussions of a merchant mulching you publicly in a meeting ... you're only being mulched because there is truth in what you are saying.

Shop.org and Internet Retailer: Smart Marketers

I was in the bathroom at Shop.org last Tuesday ... and I noticed a series of ads for a digital service. The ads were pasted to the bottom of the mirrors in the bathroom, next to the sinks.

A thought occurred to me.

"The Shop.org folks are so smart that they convinced a digital vendor to pay to advertise analog messages on the mirrors in the bathroom."

And then, the digital marketer who just paid an offline organization to advertise in an analog manner tried to convince attendees that they must embrace digital solutions or risk being obsolete.

The job of a conference is to tell a good story ... much in the same way that Fox News and MSNBC twist the news and then tell a story that resonates with their passionate core of fans. Internet Retailer is best at doing this ... with Shop.org not all that far behind. There are several elements to the story they communicate.

1. You, the retail brand, cataloger, or e-commerce business, are not terribly smart, and are about to fall well behind the competition.
2. You, the digital vendor, could be amazingly successful if you could get your digital solution broadcast to thousands of decision makers, in person, in an analog fashion (think about that one for a moment).
3. Modern business is too complicated, with too many moving pieces for anybody to master.
4. The solution, of course, is to learn about as many pieces as possible (at the conference, of course), and then integrate all the pieces via a concept known as "omnichannel".
5. If you learn all the pieces, and then successfully integrate all the pieces, you will be successful. 
6. The conference is the place to learn how to execute all of the pieces, and is, not surprisingly, the place where you then learn how to integrate all of the pieces to make magic happen.
7. The conference teaches concepts like return on investment, but banks on the fact that none of the conference attendees will quantify the return on investment of attending the conference.

Shop.org and Internet Retailer convince retailers, catalogers, and e-commerce brands to pay money to learn about managing the pieces. They also convince vendors to pay money to have access to people learning to manage the pieces. This leads to three outcomes.

1. Retailers, Catalogers, and E-commerce brands pay twice ... they pay the conference, and they ultimately pay vendors at the conference.
2. Vendors pay the conference, and are then ultimately reimbursed by Retailers, Catalogers, and E-commerce brands who purchase products and services.
3. The conference double-dips ... they get paid by Retailers, Catalogers, and E-commerce brands ... and they get paid by Vendors.

In the payment situation above, who gets all the money?

In the payment situation above, who truly has all the power?

What Is The Next Big Tactic? (And One Shocking Reason That Tactics Don't Work)

But first, take twenty seconds and read this ditty about Professor PuddinPop (click here).

What did you learn, after reading the article?

The Wisconsin Humane Society found a "hook", didn't they? At the Ozaukee County office, cats are adopted in a month instead of three months (hint - much better conversion rate) because they are given clever names. That's it. No retargeting. No clever, personalized, highly relevant email campaigns. No organic search program designed to take traffic away from the Waukegan Humane Society.

I'm asked, all too often, what the next big tactic is? Happens all the time. As if the secret to business success can be found in manipulating Google or putting an image on Instagram.

You have to understand, tactics are easy. Well, let me restate that. Tactics are a heck of a lot easier than being creative. It is terribly hard to come up with names like "The Good King Snugglewumps", but it is very easy to develop a "Twitter Posting Strategy" using tips like "Increase Engagement By Re-Tweeting Your Own Content".

Tactics don't work because everybody is employing silly, basic, meaningless tactics. The first person/organization to employ a tactic wasn't employing a tactic - they were truly innovating. The first organization to figure out how to manipulate Google for increased traffic truly found a "hook" ... everybody else in the past fourteen years simply got in line by doing the same thing ... they are now employing tactics ... and as a result, everybody obtains tepid, boring, hopelessly arid results.

When you find a hook, through creative & marketing, you enjoy the outweighed benefits of being first. You are copying nobody. And as a consequence, the likelihood that you will be successful in any one endeavor is low, but the likelihood of success overall is high. I've written 2,800 blog posts ... 2,750 are complete duds (like this one), but in total, I represent something different and unique, and as a result, I have some level of success.

Tactics are the realm of those who are choosing not to be creative. Every person is creative, in some way.

Did you notice the heading for this blog post? This is an example of a tactic. The organizations that first used this style of writing were innovating, they were being creative, and the gained audience in the process. Today, it is a media "best practice" to use redonkulous headings - everybody does it - and as a result, we have a sea of heading sewage to wade trough to get to good content.

Stop looking for the next tactic.

Start trying to be creative, unique, and different.