Final Post On Hippomans: Using Omnichannel To Improve The Future

Ok, we've spent a month diagnosing the problem at Hippoman's. Fun times, no doubt about it.

Now it's time to fix Hippoman's. Nobody hires a doctor to diagnose the problem. We go to the doctor, asking the doctor to fix what ails us.

There are plenty of omnichannel ideas that you'd love to implement, to fix a business like Hippoman's.

Let's start with merchandise. There aren't enough new items, and the trend in new item development is starving the customer file. This, more than anything, needs to be changed. I'd set goals for both the merchandising and marketing teams.

• 40% of Annual Bonus.
• 100% Payout = > 700 New Items and > 40 Winners.
• 50% Payout = > 600 New Items and > 30 Winners.
• 0% Payout = Failure to achieve either 600 new items and/or 30 winning new items.

Why put this on the marketing department? Simple. If marketing shares this objective, then marketing must help the merchandising team promote new items. This forces the marketing team to put promising new items in email campaigns, key landing pages, and the home page. If both departments are not given the same incentive, then the incentive is not going to be met. And if the merchandising team ignores the objective, then there will be a department of marketers who are white-hot angry, putting pressure on merchants unwilling to change.

Second, I'd focus on new customers. Again, both merchandising and marketing have the same objective.

• 40% of Annual Bonus.
• 100% Payout = > 450,000 New + Reactivated Customers.
• 50% Payout = 350,000 to 449,999 New + Reactivated Customers.
• 0% Payout = 0 to 349,999 New + Reactivated Customers.

Why have the merchandising team be accountable for new + reactivated customers? Simple. If the merchandising team does a great job of finding new items and carrying over winning items, then more customers will purchase. And since Hippoman's is highly dependent upon new + reactivated customers, then any merchandising gains will clearly manifest in new + reactivated customers. This is the metric everybody needs to focus on. The marketing team is going to have to provide full transparency, so that the merchandising team knows that marketing is doing a good job. Better yet, marketing and merchandising get to learn about each other. In the merchandising objective, the marketing team is going to have to comb over a lot of merchandising reporting, in order to do a better job. Finally, if marketing ignores the objective, then there will be a department of merchants who are white-hot angry, putting pressure on marketers unwilling to change.

I'd also create an objective that pleases the omnichannel community. My objective would look like this:

• 20% of Annual Bonus.
• 100% Payout = At Least 20 Items That Generate > $50,000 on Tablets + Phones.
• 50% Payout = Between 14 Items and 19 Items That Generate > $50,000 on Tablets + Phones.
• 0% Payout = 0 to 13 Items That Generate > $50,000 on Tablets + Phones.

Notice how this objective is written. It is written in a way that encourages the merchandising team to take an active interest in finding the merchandise assortment (likely to be different than the core merchandising assortment) that works best on mobile devices (very important for future success). The objective forces the marketing team to acquire new customers on mobile devices, and as a consequence, teaches the marketing team the merchandise that works best on those devices. The objective helps both merchants and marketers begin to move to the future. Best of all, the marketing team is going to have to fully explore modern marketing (omnichannel) techniques, if the marketing team wants to achieve the objective.

I would make sure that reporting is published, weekly, to the entire company, on the progress of the marketing/merchandising team on the three objectives above. And when marketing and merchandising succeed, I would pay big, big bonuses to all employees ... all employees. Everybody should share in the success.

I would make sure that every employee, yes, EVERY employee is bonus eligible. Every employee must have an incentive to perform well, and must be compensated nicely if they perform well. I recommend the following bonus incentive strategy.

• Hourly Employees = 5% of Annual Salary depends upon meeting bonus criteria.
• Analysts = 10% of Annual Salary depends upon meeting bonus criteria.
• Managers = 20% of Annual Salary depends upon meeting bonus criteria.
• Directors = 40% of Annual Salary depends upon meeting bonus criteria.
• Vice Presidents = 80% of Annual Salary depends upon meeting bonus criteria.
• C-Level Executives = 120% of Annual Salary depends upon meeting bonus criteria.

This form of "variable pay" appropriately rewards all employees - all employees share in the success of the company. All employees, of course, are then required to pay attention to each objective. There is no reason why a Distribution Center Manager cannot ask why the merchandising team isn't developing enough new items ... no reason whatsoever. There is no reason why a Finance Director cannot ask why the marketing team isn't acquiring enough new customers ... and if marketing is not acquiring enough new customers, there's nothing wrong with marketing demanding more $$$ from finance to get the job done. The objectives force all employees to focus on the stuff that matters, and jointly holds employees accountable for success.

I know, you're going to say, "But Kevin, we can't do that, that's too expensive." Fine. Then don't do it. Keep all the money for yourself. And then don't complain to me when business performance continues to suffer. I'd rather pay my employees to fix my business than pay a vendor for an omnichannel solution that won't move the needle one bit.

That's where I'd start.

How would you create incentives, to make sure that employees do the right thing for the business? Discuss.

Hippoman's Big And Tall: Overview of Findings

You know, we learned a lot over the past three weeks, didn't we? By digging in, and analyzing customer behavior longitudinally, we figured out why this business is no longer profitable.

Notice I spent very little time talking about channels. That's for a good reason. This business is not failing because email isn't being maximized, or because promotions are not being offered in the same manner across channels, or because Mr. Hippoman's team doesn't have a robust mobile offering.

No amount of website optimization can overcome the fact that this company de-emphasized new items. No amount of omnichannel strategy can overcome the fact that this company raised the price of new items by 20%. No amount of theoretical strategy can overcome the fact that customers continued to buy existing items at comparable rates, but were literally starved by Hippoman's new item strategy. Nothing can help when free shipping promotions have been extended, and then are comp'd against similar prior-year strategy.

Our businesses don't fail because we're not engaging with customers on Pinterest or Instagram. Our businesses fail because we ignore the basics.

When I work with a company, especially in the past two years (on Diagnostics and Merchandise Forensics projects ... which are rapidly becoming the same thing), I find that our overwhelming focus on channels (omnichannel) blinds us to the real reasons why a business fails. We desperately try to create a "viral video" when we could spend the time creating great new products that, on their own, go viral.

At a high level, we know what happened.

• Sales have declined for many years.
• Management asked me to focus on the past three years.
• Sales declined over the past three years - but held mostly constant in 2013.
• Repurchase rates are down dramatically in 2014.
• Repurchase rates are very low to being with (low-mid 20% range). That's ok, as long as the company has a customer acquisition strategy to grow the business via new customers.
• Orders per buyer are in decline.
• Items per order are in decline.
• Price per item purchased is increasing over time, and increased dramatically in 2014, paired with a dramatic sales drop in 2014.
• By multiplying orders per buyer, items per order, and price per item, we obtain the average amount a customer spends, annually. This amount has not changed in four years.
• Management is moving a lot of levers, and those levers are not causing customers to spend more.
• Free shipping was ramped-up in 2013, resulting in the only increase in the customer file during this timeframe.
• Not enough new customers are being acquired to grow the business, period.
• Buyer productivity across Tops and Bottoms was directionally similar.
• Existing buyer productivity declined significantly in 2014.
• New + Reactivated buyers declined significantly in 2014.
• Existing items maintained productivity in 2014.
• New item productivity declined dramatically in 2014, causing the sales decline.
• New item introductions decreased in 2013, and decreased again in 2014.
• New item introductions in 2014 were 20% more expensive than in 2013, driving up the price per item purchased, driving down items per order.
• New item productivity, in total, drove down comp segment performance, drove down orders per buyer, and drove down annual repurchase rates.
• Free shipping promotions propped-up the business in 2013. When free shipping promotions were comp'd in 2014 (vs. 2013), new item merchandise productivity was exposed, sinking the business.
• Customers become hooked on free shipping, and need free shipping to buy again.

Business failure, in the case of Hippoman's Big And Tall, is self-inflicted.

In most of my projects, business failure is self-inflicted.

And that's a good thing. It means that my clients can fix their problems. By having an obsessive focus on how merchandising issues impact merchandise productivity, my clients can take the steps necessary to grow again.

In my projects, I drill down on the issues described in this series. I can figure out where/when issues begin. In several projects in 2014, I could literally identify the date when problems started (i.e. February 19).

You, too, can figure out what happened, and when.

It's not hard, folks.

You can do this!

And if you don't have the resources to perform the work, then please, email me (kevinh@minethatdata.com) and ask me to do it for you. I have 3.000 lines of pre-written code that will allow me to quickly diagnose your issues.

If you want more details, then please purchase the Diagnostics booklet, or the Merchandise Forensics booklet. Content from each booklet was used to analyze this dataset.

• Click here for the Merchandise Forensics booklet.
• Click here for the Diagnostics booklet.

If you'd prefer free content, then search the label "Hippoman's" on this blog, and you'll get a running chronology of this case study.

Marketers vs. Channel Operators

There is a big difference in being a channel operator, and being a marketer.


A channel operator says "mobile first" because the channel operator believes that the future is mobile. A marketer utilizes mobile to sell merchandise that a young individual wishes to purchase via mobile, and acts accordingly if the merchandise assortment doesn't cater to a mobile user.

A channel operator wants product, pricing, promotions aligned across all channels. A marketer looks at what the target customer in each market wants, and then markets the appropriate merchandise assortment to unique customers by channel.

A channel operator believes that the merchandise assortment is fine, and that the business can grow by offering the product in more channels. A marketer knows that if the merchandise assortment is desired by the customer, the customer will buy more merchandise via the channel the customer wishes to transact in, allowing the channel operator to succeed.

The channel operator wants to tear down silos, and have everybody working off the same blueprint. The marketer knows that employees don't get along, and as a result, the marketer creates solutions that benefit the customer while maximizing interpersonal work relationships.

The channel operator wants the marketing budget to expand in an effort to cover numerous marketing channels. The marketer allocates the marketing budget efficiently, based on what works best.

The channel operator says that "the customer" wants an omnichannel experience. The marketer knows that "some customers" want an omnichannel experience.

The channel operator believes that the customer purchases because of channel execution. The marketer knows that without merchandise, price, customer service, and story, the customer doesn't buy.

The channel operator is dazzled by technology, and assumes that the customer, too, is dazzled by technology. The marketer figures out how to get a customer to buy something in lieu of optimal technology.

Now, let's be fair. The channel operator can generate a business a lot of profit. But the channel operator is not a marketer, and is certainly not a merchant. Without merchandise that the customer has to have, both the marketer and the channel operator are in trouble. The marketer has the imagination to craft a story around merchandise. The channel operator struggles to tell a story. Where possible, focus on merchandise & story.

Describe How You Would Fix This Problem For Brookstone

Please describe how you would solve this problem for Brookstone.

Brookstone spends $$$ to send a catalog. Brookstone creates demand with their catalog - demand for a Fitbit. So, the customer visits Brookstone's website. Here's what the customer sees:

Ok, $99.95, and free shipping on orders over $50. So far, I like that. And the item is likely the same price in-store as online.

But is $99.95 the best price? I don't know. Let's consult Google.

Clearly, Amazon is squatting on the item, and at least Brookstone appears in the pricing list, but Brookstone isn't the cheapest price. Oh oh. So let's assume that the customer clicks on the list of available retailers.

Look at that ... L.L. Bean has free shipping and no sales tax, whereas Brookstone is required to charge sales tax. Now, it doesn't matter that Google calculates sales tax incorrectly, the signal has been processed in my brain - I save close to $10 buying the item from L.L. Bean than by buying the item from Brookstone.

Finally, before buying the item from L.L. Bean, I really should check Amazon, shouldn't I?

Oh, look, I'm an Amazon Prime customer, so I pay $96, free shipping, and if I am in a state where Amazon doesn't have a presence, I don't pay sales tax, do I?

My best bet, if Amazon does not have a presence in my state, is to buy the item from Amazon ... $96, and the item will be here in two days.

My best bet, if Amazon does have a presence in my state, is to buy the item from L.L. Bean, assuming they don't have a presence in my state (they don't) ... $99.95, and the item will probably be here in five-ish days.

Brookstone, the company that spent the marketing dollars on a catalog and email marketing and retargeting and search and shopping comparison engines and spent capital on physical stores ... well, Brookstone spent all that money to drive my order to either L.L. Bean or Amazon.

If you are Brookstone, what do you do to obtain this order, an order that Brookstone created? Because it is clear that no amount of omnichannel strategy, whatsoever, will drive Brookstone down to the lowest price on this item.

Thoughts?

How would you, if you worked at Brookstone, combat this issue? What kind of omnichannel strategy can you craft to defeat this problem.

Updated Slides - VT/NH Presentation on February 19

Ok, friends, here's what are likely to be the 145 slides I present at the VT/NH Marketing Group session in Concord, NH on February 19.

Click here to download the slides.

Turn to page 62 for a new series of slides that outline the metrics surrounding a successful catalog business - how do your metrics compare?

And for heaven's sake, please hurry up and register for the conference before the room is full ... attendance is on a record pace ... and why wouldn't it be if you had a chance to hear Amy Africa present??!!

Click here to register.

Again - no selling, folks. It's you and your peers, discussing the future of your industry. Where else are you going to get this opportunity? And for under $200?

You're not going to learn eight best practices for driving sales through Instagram - nope - you're going to spend a day thinking about the future of your industry. Isn't that worth a day or two of time away from the office?

I know you're interested in this session ... the three versions of the presentation (the link to the one above is the fourth version) have been pinged just shy of 2,000 times total, with each version gaining more downloads than the prior version. So sign up, and I'll see you in a few weeks!

If The NY TImes Says Catalogs Are Back, They're Back!

Soak it in (click here)! What else are you going to do today, as snow envelops one tiny fraction of the planet but dominates everything you read or watch?

Pay attention to the graph.

Notice that the article doesn't talk much about sales, and doesn't mention profit. Why didn't any of the companies shown in the article talk about how profitable it is to mail catalogs?

It's been quite an old-school media blitz about catalogs in recent weeks, don't you think? It almost makes you feel like something is being astroturfed by the sources in the article who have a vested interest in promoting paper.

And like all articles, it is dutifully mentioned that Lands' End lost sales 15 years ago by not mailing as many catalogs, therefore, everybody today should pay attention to that cautionary tale. 

Does the article mention about AOL mailed fewer internet access CDs via the mail in 2000 and ever since, point out that AOL lost all their market share, and then use that as a cautionary tale for promoting internet access via mailed CDs in 2015? Wait. Maybe we just figured something out. Maybe, just maybe, AOL would still be granting all of us internet access if they were still mailing those CDs to us.

Now, go measure your own catalog results via mail/holdout tests. If you can demonstrate that you have a 62% organic rate and you can still generate profit mailing a catalog to online customers outside of 12 months of recency who look a lot like Judy, then please, go mail as many catalogs as you profitably can - you've made a good decision.

SkyMall - Bankrupt

Click here, dear readers. And read this one, too, while you're at it (click here). And if you like an omnichannel way to grow the business, this author has one for you (click here) - suggesting that omnichannel would save SkyMall.

I keep hearing the "omnichannel argument", as it relates to SkyMall. Geez.

Here's the problem. SkyMall went from $80,000,000 a year in annual sales to roughly $20,000,000 this year ... that's quite a drop over five or six years. 

What changed? Infinity!

What do I mean by infinity?

There was a time when you flew, and you didn't have choices. A book. Hemispheres magazine. And SkyMall. It didn't matter that SkyMall prices were more expensive in SkyMall than the same item was priced on Amazon, you were a bored zombie on a flight from San Francisco to Newark - SkyMall greatly benefited from limited entertainment choices.

Then the FAA decided you could use your phone on the plane. Your entertainment choices went from a handful to infinity.

In one of the articles, the author suggested that you combat infinity by going "omnichannel".

Let me ask you a question.

• "You are sitting in your living room, and a TV ad comes on the screen, imploring you to buy from SkyMall. And the ads online demand that you buy from SkyMall. And SkyMall has the best website in the world. And SkyMall has the best email marketing campaigns, personalized and relevant and sent several times a week. And let's suggest that SkyMall has the best mobile experience on the planet - and their images are pinned all over Pinterest, integrated with fantastic Facebook marketing and stunningly clever tweets timed for maximum engagement. And there's beauty in their efforts on Instagram - and then there's those Snapchat efforts that disappear. They've got it all. Do you buy from SkyMall? And if you're interested in buying from SkyMall, do you not check Amazon first? And if you check Amazon first, and the price is lower on Amazon, do you not choose Amazon, while Amazon sends SkyMall a Christmas Card thanking SkyMall for creating demand that Amazon captures?"

The number one problem that omnichannel advocates have, other than the fact that sales generally don't grow when you put all your chips in the middle of the omnichannel table, is that omnichannel amplifies infinity.

The question you have to ask yourself, for your business, is how do you expect your customer to pay attention to you when every company employs the scorched-Earth approach of omnichannel marketing? How will you break through when every company is screaming at you in an infinite number of channels? What difference does it make if you are marketing in 127 channels and 10,000 companies are also marketing in 127 channels?

Instead of focusing on channels - why not focus on what, exactly, you're going to do/say that actually causes a customer to care, to pay attention?

Use SkyMall as an example ... sales crumbled the minute airline travelers were given infinite entertainment options. What is your strategy to combat an infinite number of entertainment options?

Piperlime - Done

Click here to read the news - yet another punch in the gut in the omnichannel movement.

These days, you read about online brands opening stores ... you're told that this is the future, an exciting omnichannel future. Well, Piperlime opened a store (2012), just like the omnichannel experts demand of online companies. The brand was backed up by the fixed cost infrastructure of Gap ... plenty of resources to succeed there. They had partnerships with celebrity stylists, TV stars.

They did what the experts say you HAVE to do to be successful.

And yet - they're done.

Our obsession with channels is killing us.

eBay Eliminating 2,400 Jobs

Click here for the gloom-and-doom the media are piling upon eBay, who only grew sales by +/- 6% during the November / December timeframe, according to third parties who don't have full access to actual sales numbers.

It wasn't long ago that the pundits lauded eBay, celebrating the fact that they were shifting business to mobile - remember the gaudy platitudes about 40% of new customers coming in during Holiday 2013 via mobile (click here). 

E-commerce experts are going to learn what catalog experts learned a decade ago ... channel shift does not equate to incremental sales. It just equates to different, but not better customer behavior.

This is where a comp segment analysis is so critical. Undoubtedly, the analytics folks at eBay have already done this, and either learned that new customer counts are down dramatically, existing customers are spending less, or both. When sales don't meet analyst expectations, there's almost always a comp segment issue with existing customers spending less. And that's a huge problem in e-commerce ... too few outbound marketing tactics to bring customers back (whereas catalog brands have huge advantages in these instances).

Twelve months ago, eBay was celebrated as a mobile pioneer.

Today ... layoffs and derision from outsiders.

Mobile is not the answer ... it's just a channel.

The key to business success is having something that customers want to purchase through you more than the competition. Why do so few in the marketing world focus on this?

Hippoman's Big And Tall: Price Points On New Items

Way, way back at the start of the case study, we learned that Hippoman's Big And Tall was selling much more expensive items in 2014.

I decided to analyze the average price point of new items, and of existing items, to see how Hippoman's Big And Tall got to this place.

Here is the average price point of new items, for the past four years.

• 2011 = $21.31.
• 2012 = $22.83.
• 2013 = $21.93.
• 2014 = $26.83.

Do you see a trend? What happened in 2014?

Here's the average price point for existing items, for the past four years.

• 2011 = $22.00.
• 2012 = $22.33.
• 2013 = $24.83.
• 2014 = $25.00.

Well, the trend between 2013 and 2014 is constant, isn't it? There was a modest increase from 2012 to 2013, no doubt about it. But the major increase in price points in 2014 came exclusively from new items, didn't it?

We saw what happened when prices increased. Repurchase rates slumped, comp segment productivity slumped, and items per order slumped.

Management decided to cut back on new items.

Management decided to introduce new items that were 20% more expensive than prior year introductions.

Customers, without the power of increased free shipping promotions, rebelled against Hippoman's Big And Tall.

And Hippoman's Big And Tall paid the price. A profitable business became an unprofitable business.

How would you craft your presentation for Mr. Hippoman? What would you tell him? What would be the tone of your message?

Hippoman's Big And Tall: New Item Development

Well, we identified a big problem with new items.

Now let's look at new items offered during the past four years. We'll borrow a table from my Merchandising Forensics framework.

In 2011, there were 732 new items introduced, generating $10.1 million in demand (average = $13,786 per item).

In 2012, there were 724 new items introduced, generating $10.4 million in demand (average = $14,363 per item).

In 2013, there were 622 new items introduced, generating $8.9 million in demand (average = $14,235 per item).

In 2014, there were 567 new items introduced, generating $7.0 million in demand (average = $12,323 per item).

Remember, in 2013, the increase in promotions (free shipping) masked the new item issue. New items were cut from 724 to 622 in 2013 ... and these items essentially maintained productivity per item.

In 2014, new items were cut back significantly, once again, from 724 to 622 to 567 in 2014. And without the increased glow of free shipping, productivity slumped to $12,323 per item.

In reality, without the free shipping bump in 2013, we'd observe two big trends.

• New item offerings cratered ... 724 to 622 to 567.
• New item productivity cratered ... $14,363 to $14,235 to $12,323 ... with the $14,235 in 2013 likely being $13,235 without the glow of free shipping increases.

Look at where demand came from (the bottom three rows of the table). Doesn't 2013 look like an outlier? It does to me. It looks like Hippoman's terminated a veritable plethora of old items, and instead featured items 1-2 years old, found that the strategy didn't work, and then held on to more of the older items in an attempt to grow productivity.

If you were me, what would you tell Mr. Hippoman?

Hippoman's Big And Tall: Why Did The Business Do "Ok" In 2013?

Within the comp segment framework, I can see evidence of why the business remained mostly flat in 2013. Here's my comp segment table for paid shipping orders.

Let's simplify the analysis. Look at paid shipping orders in 2013, and 2014, in total.

• 2013 = -9.3%.
• 2014 = -10.9%.

Now, let's compare the results to orders via free shipping.

Again, let's simplify by looking at the totals for 2013, and 2014.

• 2013 = +14.8%.
• 2014 = -6.8%.

Tell me what you observe?

The reason the business was flat in 2013 was because free shipping propped up the customer file.

In other words, from a global standpoint, free shipping performance masked the problems with new items, causing Hippoman's Big And Tall to perceive that business wasn't all that bad.

However, when free shipping was comp'd against 2013 results, the glow from free shipping disappeared, leaving the gaping void caused by new item productivity to magnify.

Does this make sense to you?

Do you think this dynamic might be happening at your business?

Do you now understand why I continually harp on new item productivity? The vast majority of my project work in 2013-2014 demonstrated a merchandising challenge, usually a new item challenge, that was masked by increased discounts/promotions.

Rarely do I find unfettered incompetence in channel management or website optimization or omnichannel strategy.

I almost always find merchandising challenges.

At Hippoman's Big And Tall, we've identified a merchandising problem ... a big merchandising problem.

Penney Is Mailing A Catalog

The old-school PR blitz by Baby Boomer media is telling:

• Via Reuters (click here).
• NPR (and this one reads like an industry press release, folks).
• CBS News (click here).
• Wall St. Journal (click here).
• National Retail Federation SmartBrief Top Story (click here).
• Shop.org SmartBrief (click here).
• Chain Store Age (click here).
• Dallas Business Journal (click here).
• Market Watch (click here).
• Daily Finance (click here).
• Fortune (click here).
• International Business Times (click here).

If your customer is Judy (average age = 62), mail a catalog. Please. Mail lots of 'em. And generate a ton of profit in the process. Please - do it!

If your customer is Jennifer (average age = 46), don't mail more than 3 per year, it's not worth it. I've tested it, over and over and over again. You are not a cataloger, you mail a quarterly catalog to stimulate some demand. 

If your customer is Jasmine (average age = 30), catalogs are as relevant to her as are vinyl records.

If your customer is Jadyn (average age = 14), you should read this story about Snapchat Stories ... one billion (1,000,000,000) are viewed each and every day (click here). Let that one sink in. One. Billion. Each. Day. Or read this story about fast fashion (click here).

You are so much smarter than the content in the articles. You don't market to "the customer", as the articles say. Instead, you segment "your customers". You don't adhere to mailing catalogs to every demographic. You don't require the entire business to be omni-channel in an effort to allow others to be paid via your profit.

JCP mailing a catalog is not proof that catalogs work. If it were proof, then JCP never would have stopped mailing them in the first place. You can't have it both ways.

JCP has no choice but to try things (good for them) ... their sales have not rebounded under new/old management. They have to do something. Have to. If they are targeting their new catalog to Judy, they're being very, very smart.

Updated Slides For The February Presentation In Concord, NH

Click here, dear friends, for updated slides for the VT/NH Marketing Group presentation in Concord on February 19.

I added another 30-40 slides ... I won't get to them all, and that's ok. I changed the second half of the presentation, where we'll spend some time talking about the future as it relates to the stories we tell our customers. Based on your feedback, I'll update them if necessary.

Click here to register ... do it soon, the place is filling up. I'm told the attendees are exactly the kind of folks you want to spend time with, so don't waste any time ... join me on February 19! No selling, low cost, high quality content from the other presenters (you can judge my stuff by looking at the slides).

I'm really excited to do this, folks. No selling. Low cost. An opportunity to discuss ideas, to discuss the future. Where else are you going to get that?

If you're not interested in going, please email me (kevinh@minethatdata.com) and let me know what dissuades you from attending, or what you'd need to see to attend in the future.

Hippoman's Big And Tall: New + Reactivated Customers

Earlier in the case study, we learned that Hippoman's Big And Tall is highly, and I mean highly dependent upon new customers for sales growth.

So let's look at new + reactivated customers (all new customers plus all customers who, when they bought, were at least 13 months past their last purchase) during the past three years.

Now, please look at January - June of 2014. There's a serious problem, don't you think?

Remember our new item comp segment analysis results from January - June 2014?

And here was what existing item comp segment performance looked like:

There is a problem with new + reactivated customers in January - June.

There is a problem with new item productivity in January - June.

There is no problem with existing item productivity in January - June.

Across my client base, when there is a problem with new + reactivated customers, the marketing team gets "lit up". In fact, with the kind of problems observed here, it's likely that somebody in marketing is going to be fired.

Would you fire somebody in marketing, now that you've had a chance to review the results?

Or would you focus the company on new items?

Hippoman's Big And Tall: Tops And Bottoms Do Not Reveal Differences

Last time, we learned the real reason this business is tanking ... new item problems.

Here's the comp segment analysis for Tops:

And for Bottoms:

There are subtle differences, but let's be honest - the end result, on an annual basis, is the same. Both divisions were up 3% in 2013, the two divisions were down 9% and 8% in 2014.

The problem isn't Tops, and the problem isn't Bottoms.

The problem is new items within Tops, and new items within Bottoms.

Omnichannel Rob Lowe

For those of you who still watch television, you can't spend a half-hour without seeing a Rob Lowe DirecTV commercial. Click here if you're reading in email for an example ... or watch below if you're reading via the website / RSS.

The script is simple ... and can be applied to the omnichannel movement.

Rob Lowe: "Hi, I'm Rob Lowe, and I buy stuff."

Omnichannel Rob Lowe (Holding A Tablet, A Mobile Phone, And A Laptop): "And I'm Omnichannel Rob Lowe, and I love shopping via devices."

Rob Lowe: "I like shopping at companies that have merchandise that I want to purchase."

Omnichannel Rob Lowe (Accidentally dropping his laptop on the floor): "And I like shopping at companies that allow me to access my shopping cart anywhere, anytime."

Rob Lowe: "Fact: If a company has something I want to purchase, I just purchase the item."

Omnichannel Rob Lowe: "Fact: If an influential blogger won't pin an item on Pinterest that is shared via Twitter with a hashtag and then is available for eight seconds on Snapchat and then is given a thousand thumbs up on Facebook and is then featured in retargeting ads 1,443 times per day on every website I visit and then is available online and in stores so that I can drive to a store and try on the item and then not buy the item in-store but instead have the item shipped to my home next-day from a neighboring store, shipped for free of course, I won't purchase the item. Because this is what the customer demands, right?"

Rob Lowe (pointing at Omnichannel Rob Lowe, who is grumbling that his shopping carts are not updating in real time across his laptop, mobile phone, and tablet): "Don't be like this 'me'. Drop your omnichannel habits, and just buy the stupid item, now.

Yes, this is a light-hearted tease ... I fully understand that customers use multiple devices to shop, I get it. I think it's important to point out what we are communicating ... we are telling customers to act in a complicated manner to complete simple tasks. We can spend more time simplifying shopping ... and if we did, maybe, just maybe, customers would spend more.

New Subs and Unsubs

In case you haven't noticed, I am in the process of running a three month long test here on this blog.

In much of November / December, I shifted the focus to retail, and to omnichannel.

In January, I am working through a fictional company (Hippoman's Big And Tall), and will continue to do so for another few weeks.

Here's what happens when I conduct experiments.

1. New subs double or triple.
2. Unsubs double or triple.
3. The increased buzz/velocity results in more subs.

I'd like your feedback.

What, in your opinion, is the appropriate cadence of content? Should I have themes, and if I do have themes, should I go all-in for a month, or should I intersperse the content with other content? Finally, what should the other content be?

Tell me what you think.

Hippoman's Big And Tall: Good Customers vs. New/Existing Merchandise

Last time we studied Hippoman's, we saw that productivity isn't always in decline. Summer productivity is flat, and November productivity is improving.

Let's look at productivity among 2x buyers, for new items and existing items.

Here's new items.

Ok, now we're getting somewhere, aren't we?!!

Look at January - June 2013. Productivity increased, didn't it? Customers spent more on new items.

Then we have September - December 2013. A catastrophe. New item performance cratered.

Now look at January - June 2014. Holy cow! Mr. Hippoman's team must have cut way, way, way back on new item introductions, because those kind of metrics are just catastrophic.

More on new items in a moment.

Here's the comp segment analysis for existing items.

HOLY COW! OMG! And whatever term you want to add to exclaim the reason this business is failing. We've figured out a major component of business failure, haven't we?

What do you see, when you compare this table to the comp segment analysis of new items? Study both tables closely.

In 2013, new item comps were -2%, while existing items comps were +7%.

In 2014, new item comps were -29%, while existing item comps were +4%.

Mr. Hippoman is literally starving his customer file. His merchandising team either decided to stop offering new items at historical rates, or his merchandising team decided to offer new items that customers hated. We'll have to research this trend further, no doubt about it.

This analysis - these two tables - continually reveal business challenges across my client base. New items on the merchandising side are as important as new customers are on the marketing side.

Can you see why it is so critical to run a comp segment analysis on the total business, on new items, and on existing items?

Retail Sales Decline In December

Click here for details, folks.

Ask yourself why retail sales would decline at a time when omnichannel strategies have never been stronger, gas prices are the lowest in a decade, and the weather was bearable compared to 2013?

Retail sales were down in November, too.

We are focusing on technology ... but customers don't buy technology, they buy merchandise. We need a greater focus on merchandise. It is clear, now, that customers do not want what we are selling. We cannot sell crap on a tablet or phablet - that's not the solution. We need to sell stuff our customers want to buy. 

Back to the basics.

We will fix this problem.

We will fix this problem.

Hippoman's Big And Tall: How Are Good Customers Performing?

Let's look at a comp segment analysis of 2x buyers.

Ok, this isn't all bad news, is it? Yes, there have been some bad months, horrible months really (January - June 2014, September - October 2014). But business flattened out or improved moderately in November and December. That's not so bad. We'll have to check in with Mr. Hippoman to see what happened during the Christmas season.

Notice that existing customer performance generally improved in 2013. This is very, very interesting. The total business was down by about 1% in 2013, but comp segment performance was up 3.3% in 2013. This means that there were customer acquisition and/or customer reactivation problems.

When compared to 2012, we see the following.

• Productivity declines in January, February, April, September, October, December.
• Flat performance in May, June, July, August.
• Productivity gains in November.

We'll need to check in with Mr. Hippoman, to see what is happening in late Winter and early Fall. It appears that summer is flat, and November is actually experiencing productivity increases.

Hippoman's Big And Tall: Merchandise Divisions

The news has been continually bad, and will get worse.

Mr. Hippoman analyzes his business across two merchandise divisions ... Tops ... and Bottoms.

Here's the four year trend for Tops:

That's a non-stop train wreck, don't you think?

Here's the four year trend for Bottoms:

The past eighteen months haven't been pretty - but the eighteen months prior to that maintained total demand. So something was done with Bottoms during that timeframe, something that at least held things constant.

When analyzing a failing business, it is common to see different trends across merchandise divisions. Often, one merchant is experiencing more success than other merchants. This can cause bad feelings. When analyzing the business, I try to find a couple of successes, and then amplify the things that were done well. 

Hippoman's Big And Tall: Free Shipping

When a business is struggling, it's common to amp-up the promotions. Let's see if Hippoman's Big And Tall did that, as their business began to implode.

Here is annual demand, non-promotionally (no free shipping) driven:

#OMG as the kids say. Mr. Hippoman used to generate $45,000,000 a year in paid-shipping orders. Today, he generates just north of $15,000,000. Imagine the impact on profitability, folks?

Here's the graph illustrating demand from orders with free shipping.

Free shipping, once comp'd after 2012, did not help the business - while paid-shipping orders declined by several million dollars. That doesn't help the profit and loss statement, does it?

Now, I ran a couple of queries, to better understand how paid-shipping and free-shipping customers behave in the future.

• In the next year, free-shipping customers generate 50% of their demand from free-shipping, and 50% from paid-shipping.
• In the next year, paid-shipping customers generate 30% of their demand from free-shipping, and 70% from paid-shipping.

Yup - Mr. Hippoman is slowly training his customers to buy via free shipping.

Interestingly, free shipping customers repurchased at a 29% rate, while paid shipping customers repurchased at a 22% rate. This suggests that free shipping "works". So I ran another query, measuring the percentage of demand generated via free shipping by customer quality.

• Next year, new customers will generate 53% of their demand from free shipping.
• Next year, best customers will generate 60% of their demand from free shipping.

So there is a bit of a bias - it is clear that Mr. Hippoman is offering free shipping to best customers, causing best customers to repurchase. That doesn't mean that free shipping is fully responsible for the increase in repurchase rate - and given that repurchase rates are in free-fall, well, that tells us that free shipping is not truly helping.

Here's one final query. I analyzed the percentage of demand that comes from free shipping by marketing channel.

• Telephone Orders = 50%.
• Online Orders = 60%.
• Email Orders = 69%.
• Paid Search Orders = 55%.
• Affiliate Orders = 71%.

Clearly, Mr. Hippoman uses email marketing as the primary channel to communicate free shipping to customers. Email and Affiliates then attract a discount-centric customer, and as our earlier query showed, customers become trained to purchase via free shipping.

Mr. Hippoman's team is creating a series of reinforcing negative feedback loops, don't you think?