A Break

Let's take a few days off, and enjoy Canada Day and the 4th of July?

I'll see you again on July 6!

Macy's / Trump

You read this one, right (click here)?

As always ... Merchandise > Omnichannel. What good does a seamless customer experience do when there are merchandising issues?

It's the same thing with DirecTV ... #1 in customer service ... but the picture goes out during the Womens World Cup game (hint - the picture = merchandise). You can have all the commercials with talking horses and people on beaches - but none of it matters when there isn't a picture.

We're a half-generation into not focusing on what is most important to our businesses - coupled with an inability to think three steps ahead and understand how short-term decisions yield long-term consequences.

We are smart marketers. All of you reading this, you're smart. Focus on what matters!

The Secret

So now we know the secret.

You saw the Disney example ... they leveraged an "omnichannel" approach in the 1950s ... THE 1950s!!!!

The Disney secret was easy to identify ... use the "brand" as the connection between numerous mutually exclusive spending opportunities.

The reason the omnichannel approach doesn't work for our businesses is also simple ... we use the "brand" as the connection between numerous activities that lead to (usually) just one spending opportunity.

In other words, the Disney example has worked for more than a half-century because of a diversified portfolio. Meanwhile, we've put all of our eggs in one bucket - same merchandise in all channels at the same price with the same promotions and same creative. Our implementation is fundamentally different ... and the difference explains why it doesn't work.

We now know the secret to success.

Let's go do something about it!

Disney Magic

Read every single line connecting boxes in this image. Every. Single. One.

In the current omnichannel thesis, this image would exist ... but all of the words that support the lines that connect the boxes would be empty.

In other words, the current omnichannel thesis lacks any semblance of business understanding or vision or strategy.

In this one image, you can clearly see that the author understands how business works.

This truly is Disney Magic!

Let's think about our world. What might our image look like?

This is my opinion only (many of you will disagree), but our process has been created and consequently, evolved in a fashion different than the Disney example above. The process has been overrun by marketing influences, often from outside the companies we work for. The process moves up the page ... from Marketing to Content ... the Content is then Distributed via Channels, causing the Customer to Interact with Mobile and/or our Website.

At this point, Product Research begins ... and this is a big deal ... if we are happy with our Product Research, we move on to Price Research ... and that's where Google and Affiliates and others charge their tolls.

If the customer makes it this far, it is time to consider the purchase. This is where physical channels enter the story ... a Full-Price Store, an Off-Price Store, Digital Commerce, or Other Channels (continuity programs, for example). Here, a Merchandise Purchase happens, and the Merchandise Purchase theoretically causes the customer to have a completed and happy experience with The Brand.

At that point, the Marketer re-ignites the process.

Do you see how fundamentally different (and flawed) the omnichannel process is, compared to the Disney example (an example from the 1950s)?

• Disney Example: Each box feeds upon each other, multiplying demand.
• Omnichannel Reality: Each box lowers the probability of purchase, reducing demand.

In other words, Disney is giving the customer multiple opportunities to spend money differently. Our omnichannel reality gives the customer multiple opportunities to bail out of spending money one way.

This is why Omnichannel Theory (and Multichannel Theory a decade ago) fail to generate sales increases. We're just giving the customer more ways to complete one task. Disney is giving the customer more ways to complete more tasks.

That's Disney Magic!

Omnichannel Fans: Read This Immediately, You'll Love It!!

Click on this story right now ... seriously, drop everything you are doing if you are an omnichannel fan, and see your dreams validated (click here).

This strategy, of course, is modern and exciting and synergistic and ... oh ... wait ... it's from the 1950s?

The 1950s?

This is what the omnichannel community is arguing for, when it comes right down to it ... and it makes perfect sense!

Here's the secret.

Notice that the "brands" in the story are common across each box ... but the purpose of each box is fundamentally different. Comic Strips are different than Disneyland ... a fundamentally unique experience. Same brand, completely unique experiences.

The modern omnichannel approach is same brand, same experience.

Therein lies the problem with the omnichannel thesis.

But executed in a manner with same brand / unique experiences, yes, you can get me to buy into the theory.

Notice that this is one big, bubbling ecosystem, with gains in music feeding into theatrical films, which feed into Disneyland, which feed into Merchandise Licensing and so forth. Dollars keep flowing into different boxes, for different reasons. That's the secret. Modern omnichannel theory wants dollars flowing into different boxes for the same reasons, and that just isn't working.

The New Merchandise Email Marketing Tournament

Is your business trapped in a Merchandise Mega-Trend downswing? Have your merchants shut you out, did they "ice" you after you mentioned that they are having problems?

Do something to help your merchandising team.

Find eight new items that show promise. New items are critical to the future success of your business. The faster you can get a new item to high-selling status, the lower the odds are of that item falling off a cliff.

In other words, go find eight new items that have demonstrated potential, and run a merchandising tournament. You are going to help your merchandising team look good.

Pick the eight new items, and seed them 1/2/3/4/5/6/7/8, based on sales in the past month.

Next week, use email marketing to alert your customer base that you are having a merchandising tournament. Ask your customers to pick which item, of the eight, the customer expects to win the tournament (use Facebook & Twitter & Instagram & Pinterest to promote the tournament). If the item that the customer picks wins the tournament, give the customer something ... if you love discounts/promotions, then you're already giving away the farm, so no harm giving away 30% off or whatever your standard discount is.

Now, run the tournament!

On Monday, send out an email campaign, featuring #1 vs. #8.Sum up sales over the next twenty-four hours. The item that generates the most sales volume move into the semi-finals.

On Tuesday, send out an email campaign, featuring #4 vs. #5. Same rules apply.

On Wednesday, send out an email campaign, featuring #2 vs. #7. Same rules apply.

On Thursday, send out an email campaign, featuring #3 vs. #6. Same rules apply.

On Friday, use email to update your customers as to the semi-final qualifiers. Have a few interviews with the merchants responsible for the winning items - treat the merchants like Head Coaches, ask them about their chances in the semi-finals. Call out the upsets! Let your marketers do video as if they are hosts on SportsCenter. Try to have some fun. Maybe, for once, you will actually "engage" your customer base.

On Monday, run out the winner of 1/8 against the winner of 4/5. Same rules apply.

On Tuesday, run out the winner of 2/7 against the winner of 3/6. Same rules apply.

On Wednesday, use email and social media to prime the pump for the title matchup.

On Thursday, host the title matchup. Same rules apply.

On Friday, crown the champion. Any customer who purchased that item or picked that item to win gets a bounceback or some other promotion - you are always running promotions anyway, why not give the promotion some meaning?

There - you just did something to help your merchandising team grow the number of new, winning items! Do you think your merchandising team won't appreciate what you are trying to accomplish?

I know, I know, there's 57 reasons why you cannot do this ... and there's 87 reasons why I am an idiot to even suggest you do something clever in the dog days of summer when no customers are paying attention ... and there are 107 reasons why you don't have the in-house reporting to analyze the promotion in real time. Fine. Come up with something different. Be creative. What is your idea to promote new items?

For crying out loud, don't just sit there and watch merchandise productivity erode into nothing. Do something to help your merchandising team, and maybe your merchandising team will be more likely to work with you in the future.

Matched Market Testing

Maybe you want to test whether a series of digital strategies work in retail stores. Have you considered matched market testing?

I realize this is an old-school topic. Oooooooooollllllldddd school. But valuable.

Here's the concept. You don't want a customer who received "Strategy A" to stagger into a store where "Strategy B" is being executed, ruining your carefully designed test. So you execute tests within a market ... you test "Strategy A" in Kansas City ... you test "Strategy B" in St. Louis.

Match markets based on a combination of demographic attributes, population density estimates, and merchandising preferences. There are all sorts of markets that naturally pair up with each other:

• Seattle / Portland.
• San Francisco / Los Angeles.
• San Diego / Phoenix.
• Dallas / Houston.
• Pittsburgh / Cleveland.
• Minneapolis / Chicago.
• Des Moines / Omaha.
• Baltimore / Washington DC.
• Charlotte / Atlanta.
• Tampa / Miami.

Now, things don't always end up that way ... you'll have surprises ... Minneapolis / Austin or Jacksonville / Louisville or Boise / Tucson. Regardless, your target customer and your merchandise assortment, when clustered properly, will yield an appropriate matched market strategy.

Show of hands ... how many of you are executing matched market testing?

We Can't Stop Paying Tolls, We'll Be Out Of Business!!

Did you know that if I put an image (any image) in a blog post, you tend to "engage" with the post (i.e. read it) at rates 10% - 20% above when there is no image? It could be any image ... like this one of a random dude wearing a tie.

That's one way to get new customers for free. No toll has to be paid.

I know, I know, you're going to tell me that the tip I just gave you doesn't relate to your business. Your business is special, it's complicated, it's unique. Your customers are different.

The more special / unique a business is, the easier it is to acquire customers at no cost.

This is the point where some folks will say this:

• "Kevin is telling you to be unique and special. You cannot be unique and special when you sell widgets. Worse, he's telling you to stop using Google, to stop using the Co-Ops, to stop paying Facebook. Kevin would rather you be out of business. Don't listen to his silly advice. Use Google and Facebook and the Co-Ops to your advantage. Partner with them. Be smart!"

That is not what I am saying.

You can generate plenty of long-term profit via Google, via Facebook, via the Co-Ops.

But why depend fully on third parties?

Why not take control over your marketing strategy?

Every business should have a strategy for acquiring customers at no cost.

Look at the profit generation from email marketing and organic customer generation.

Would you prefer to generate $5.1 million EBT on $19.0 million demand (email + organic)?

Or would you prefer to generate break-even EBT on $29.0 million demand (catalogs + paid search + online marketing)?

Your external business partners (vendors) could care less about your organic and/or email brilliance - they don't get paid when your marketing team demonstrates organic and/or email brilliance, do they? They demand you break-even on $29,000,000 demand ... because that's how they generate profit.

We've forgotten how to generate $5.1 million EBT on $19.0 million demand, via email and organic.

I'm asking you to take control of your own business.

I'm asking you to be a marketer, not somebody who knows how to push vendor buttons to grow sales.

I'm not asking you to stop doing all the fun work you love doing with Google, and your Co-Op friends, and Facebook, and Retargeters, and Affiliates, and Comparison Shopping Engines, and countless other intermediaries.

I'm asking you to spend more time on the most important part of your business ... the part of your business where customers love your brand so much that they don't need advertising ... when that happens, you make a ton of profit, and maybe, just maybe, you share in the profit via bonuses and 401k contributions and stock options and salary increases.

I'm A Marketer - I Have No Control Over Merchandise

How do I combat mega-trends by improving my merchandising assortment? I'm just a marketer / analyst / social media manager. I don't have any say over what the merchandising team does.

WRONG!

I can still recall one of the most fascinating meetings of my career. It's back in 1993. That's a long time ago. I'm just a lowly statistical analyst at Lands' End, and for some God-forsaken reason I was invited to attend a meeting of Directors and Vice Presidents - a meeting where a recent catalog was going to be analyzed.

Aside - the best companies find ways to expose lowly analyst-level employees to Executives in an educational setting. Lands' End was one of those companies - they (not necessarily consciously) believed in employee development.

Anyway, I walk into the room ... Merchandising Executives and Inventory Executives and Creative Directors and the CEO and my department head, the Director of Circulation, are in attendance. On the wall I see boards ... each board represents a spread in the catalog ( a spread is, say, pages 8-9 in the catalog). Each board is one of four colors.

• Gold
• Green
• Blue
• Red

The colors map to variable profit (contribution) levels, pre-fixed costs.

• Gold = 30% or better variable profit, as a percentage of net sales.
• Green = 20% - 29% variable profit, as a percentage of net sales.
• Blue = 10% - 19% variable profit, as a percentage of net sales.
• Red = < 10% variable profit, as a percentage of net sales.

As I sit down, I think something to myself that I haven't thought often when attending meetings.

• "Oh oh, there's going to be a discussion about true business accountability, and I'm actually sitting in the meeting. Stunning."

The meeting begins. You'd think a Merchandising Executive would start talking, but no, my department head, the Circulation Director, she starts biting her co-workers in the ankles.

• "Why do we have four consecutive red-colored spreads on pages 8 - 15? Aren't the first twenty pages the most important?"
• "Why are we still running an item with a 40% return rate? That item alone reduced the profitability of that spread from Gold to Blue".
• "How can we possibly be sold-out of an item on page five? If we had enough merch in stock, the whole spread would have been Gold. We can pin that one squarely on the inventory management team."
• "Why do we continue to put that item on a model? We already know that when that item is featured in a stack, it performs 30% better. Why do we sabotage ourselves like this?"
• "Don't we already know that we shouldn't feature risky, new, unproductive items in a prospect catalog that has low productivity?"

Within minutes, the room was in full backpedal mode ... everybody was on their heels.

Oh, sure, some in the audience fought back.

• "Oh yeah? Can you prove you mailed the right people? Because if you mailed the wrong people, then every other thing we're looking at here today is irrelevant."

Seconds later, the discussion circled back to accountability.

I learned more in that two-hour meeting than I learned in five years working at Eddie Bauer.

I learned "how the business worked".

I learned "what increased sales and what increased profit".

I learned inter-Executive dynamics.

I learned what future analyses needed to be created to answer questions that came out of our interdisciplinary discussion.

I learned that marketing, yes, MARKETING, can drive merchandising strategy. I learned that it is critically important for MARKETING to have a voice.

If you want to combat merchandising mega-trends (ever-lowering merchandise productivity), then change your current merchandise/creative evaluation meeting structure, or get yourself invited (invite yourself if necessary) to these meetings, and bring a new perspective to the meeting ... a perspective of accountability.

The Marketing Director who spent hours biting the ankles of everybody in the room went on to have a satisfying and successful career, ultimately selling a business she built from scratch to a catalog holding company, for millions.

Nobody showed her HOW to do something. She just did what she felt was right ... she held merchants and creative folks and inventory staffers accountable for merchandise productivity, generating outstanding results in the process, clearly angering her co-workers along the way.

You, too, can do this. You don't need special skills. You do need conviction, however. And you can do it without irritating people - you can do this and be kind and caring in the process. It's your choice.

But you do need to have a good working relationship with your in-house co-workers. You can't do that if you spend all your time trying to force an omnichannel listcicle upon your company in an effort to please your industry marketing tribe.

Taylor Swift

See, Apple is introducing a new streaming service. They wanted the customers to have the service for free, for three months. During the three month period of time, they didn't want to pay the artists.

That's called a toll, folks.

So your friend, a twenty-six year old woman named Taylor Swift, wrote this open letter (click here). Ms. Swift felt that it was important for artists to be paid. Artists would agree.

About a day later, Apple agrees to pay artists during the three month test period (click here).

Too many of you tell myself, and folks like me, that "there's nothing you can do", that you feel helpless as vendors push you in directions that benefit them.

You are not helpless.

And do not retort with the "but Taylor Swift is huge, and we're small and powerless" argument. Stop it! Why not collaborate with companies you don't compete with, and as a group, argue for better terms from your vendor partners? Why won't you do that? Is it because it is hard work? You bet it is!

There is something you can do about the toll-based utopia the digital elite are thrusting upon you. It's on you, now, to make something happen. Don't just sit there. You have the skills and the goodness to make something happen. Go do it. I have faith in you!

Create This Table Immediately!!!!!

We are dealing with three mega-trends:

1. Merchandise Appropriateness.
2. How Will We Find New Customers In 2020?
3. How Will We Avoid Paying The Tolls The Mobile / Social / Digital / Offline Parasites Wish To Impose Upon Our Business?

If you want to see the impact of tolls on your business, have your finance team create this table, immediately:

This is a profit and loss statement, all the way down to Earnings Before Taxes, by marketing channel. We published this table at Nordstrom in the months leading up to the end of the traditional catalog marketing channel. Hint - it led to the end of the traditional catalog marketing program. You probably run a comparable table (right ... right?) ... if you don't, then have your finance team create this table, immediately.

After analyzing mail/holdout tests, we learn that half of demand at this brand comes from catalog marketing. The attribution gurus assign 8% of demand to paid search, 8% to email marketing, 4% to other online marketing channels, and 30% is deemed organic ... demand that will happen without any marketing whatsoever. Your attribution vendor calculates the organic percentage for you ... right ... RIGHT?

Ok, now to the goodies.

Look at variable profit / contribution per order:

• Organic Orders = $43.99.
• Email Marketing = $40.01.
• Company Average = $24.64.
• Catalog Marketing = $12.30.
• Paid Search = $11.29.

Here's Tolls Paid Per Order (TPPO):

• Organic Orders = $0.00.
• Email Marketing = $2.06.
• Company Average = $19.61.
• Paid Search = $28.88.
• Catalog Marketing = $33.60.

The catalog number is a whopper, don't you think? Your company works hard to generate +/- $44 profit per order ... and in the world of catalog marketing, 75% of the profit is handed over to catalog vendors.

• Paper Reps.
• Printers.
• Postage.
• Co-Ops.
• Merge/Purge Houses.
• Additional Assorted Vendors.

Those folks get 75% of the profit per order ... your entire company, your merchants, your creative team, your IT team, your inventory management team, your HR team that keeps people from killing each other, and countless other employees all divide up 25% of the profit. The vendors get 75%. #Omnichannel!!

Do you understand what's going on? Again, to spell this out for y'all:

• Catalog vendors divide up 75% of the profit you generate, per order.
• You and all of your co-workers divide up 25% of the profit generated.
• Without you, the catalog vendors get nothing. With you, they get 3/4th of all your profit, you get 1/4th.

Is it any wonder that everything you read is a broad encouragement for you to spend money to generate profit? Folks want you to pay more tolls. Of course they do!!

Look at the paid search number. Is it any wonder Google wants to include offline results in their toll-based structure? Is it any wonder the omnichannel community wants you to spend money in all digital channels? They want all of your profit!

Look at organic orders, and look at email marketing.

• 99% of Company EBT comes from organic orders and email marketing.
• 1% of Company EBT comes from catalog marketing, paid search, and all other online marketing activities.

Do you understand what this means?

It means that your employees and your email marketing team generate all of the profit ... and then, all of the other marketing activities roughly operate at break-even EBT levels ... the profit from those activities flows out of your company, into the coffers of the vendor community.

Tolls, my friends, TOLLS are such a critical mega-trend. Tolls are like leeches conducting a thorough and vigorous blood-letting.

Where is this mega-trend heading?

1. The industry is going to demand that you pay more (not fewer) tolls. Remember, the industry gets 75% of your profit when you pay the tolls. This is why they want you to pay the tolls. Heck, I've seen cases where Google and Co-Ops get 125% or more of your profit, I see it all the time. Think about that one.
2. The industry is going to tell you that, without their tolls, your top-line net sales will greatly decline, and they're going to tell you that you cannot have a top-line net sales decline. This line of argument is seductive, one that will keep you paying tolls out of fear.
3. Your CFO is going to eventually wake up from a deep, unfettered slumber, run the table above, and then demand that you refocus your efforts on things that benefit your co-workers. It's coming. It's unavoidable.
4. We, as marketers, are going to re-focus our efforts on generating organic demand, and on maximizing our email marketing program.

Allow me to end this post with a thought ... my metrics tell me you are gobbling up this line of reasoning. You are eagerly reading the toll-based posts (and I received my first vendor complaint on Twitter yesterday). But do you understand what I am advocating? Will you do something with what you have learned? Does your opinion differ? Send me an email (kevinh@minethatdata.com), and offer your thoughts.

But How Do I Avoid Paying Tolls?

You've probably heard it:

• "A paid search expert, an SEO expert, and a paid search vendor rep are all sitting in a car. Who is driving the car? Nobody, it's a Google self-driving car."

In other words, Google is in charge.

At this point, the marketing community looks at me, with an earnest expression, and says, "who cares?"

Your CFO cares.

Your CFO loves toll-free orders.

And guess what?

You already have a marketing channel where you generate orders that come with a toll that is close to zero.

Email marketing!!

Take a look at this table.

You pay almost nothing, in variable cost terms. On a dollar-for-dollar net sales basis, the benefits are self-evident:

• Variable Profit (what some of you call "contribution") is 3x greater.
• Profit per order, by definition, is 3x greater.
• Tolls paid per customer (TPPC) is 23x lower.

Think about this ... here, we have a $135 AOV and 38% of demand flows-through to profit, meaning $51.30 of profit/contribution is created. Now ... are you ready for great sadness? I am!

• Of the $51.30 of variable profit / contribution generated, Google took $33.33 as a toll, leaving every other employee at your company to figure out how to divide up the remaining $17.97.
• Let that one sink in for a moment.
• Google gets $33.33.
• Every other employee at your company divides up $17.97.

If your merchandising team does not do a great job with product, if your creative team does not do a great job with imagery and story, if your IT team does not do a great job of keeping your website up, if your inventory team does not properly forecast item-level demand, if your marketing team does not work with a great pay-per-click vendor, then Google does not have an opportunity to even generate the click in the first place.

And you thank everybody at your company by paying Google 2/3 of the profit, while all of your co-workers split the remaining 1/3?

Do you ever just stop, take a breath, and think?

We have countless ways to avoid tolls.

Email marketing is the tactic you are most familiar with, and unfortunately, is the tactic most ignored, a refuge for those who love to impose self-tolls via 30% off plus free shipping.

All of your creative work ... all of the stories you tell ... all of your landing pages ... your home page ... the videos you create ... merchandise quality ... low prices ... your customer service, for crying out loud ... these strategies generate orders where you do not have to pay tolls (in theory). Your merchants, your creative team, your inventory team, your IT team, your HR team who fosters love of co-workers, your finance team who makes sure there is enough money for you to do a good job, countless unnamed employees including janitors and administrative assistants, and of course your marketing team all work together to make these toll-free orders happen.

Start with email - it's in your wheelhouse.

Then start viewing everything else you do via the context of tolls. Calculate how much variable profit / contribution the toll collectors get ... and then calculate how much variable profit / contribution your employees all share, based on what is left over. You don't have to pay tolls. Team up with your merchandising and creative teams, and do something special!

Mega-Trend #3: Will We Avoid Paying Tolls To Mobile/Social/Digital/Offline Parasites?

That's the toll collector, folks ... and it's a thorny topic for those of us who have a relationship with customers and prospects.

Want an update, a refresher about the latest attempt to collect tolls? Click here.

Let's use the catalog world as an example. Let's say you work with a leading catalog merge/purge house that is owned by a big data conglomerate, and you pay $20 per thousand in fees to process prospects. You rent 10,000 names (never mind the $60 per thousand you pay those folks to achieve tepid results that need to be 40% better just to be viable), and you pay this $20 per thousand fee that virtually nobody can demonstrate creates value. You acquire 100 new customers out of the 10,000 you rented.

What impact does this $20 per thousand fee have on the 100 new customers, you ask?

• (($20 / 1000) * 10,000) / (100 new customers) = $2.00 each.

You just paid a toll ... $2.00 per new buyer. You didn't pay $20 per thousand, which seems almost free ... you paid $2.00 per new buyer for a running charge that nobody can demonstrate adds value. It's a fee that covers vendor fixed costs ... and vendor most certainly need to cover fixed costs. But your competition finds ways to obtain new customers without having to cover vendor fixed costs ... they find names for free ... this allows your competition to outperform you.

Same thing happens on Google. You pay $0.50 for a click. Cheap!  But then, you observe a lousy 2% conversion rate (if you're lucky) ... which means that you didn't pay $0.50 per click, but instead, you paid ($0.50) / (0.02) = $25.00 per order.

You paid $25.00. Per order. To Google!

Do you pay your marketing team $25.00 when they generate an order? Your creative team? Your merchants? Have you ever calculated what you pay those folks, per order?

$25.00 per order is a steep toll, don't you think? If you have a $100.00 average order value, meaning you collect $100.00 from the customer, you immediately give Google $25.00, right off the top. Then you give your vendors $50.00 for the cost of goods sold to the customer. Of the $50.00 of gross margin you earned, half went to Google. And then you'll thank all your in-house employees by freezing salary increases at 2%. You give Google all that money and you stiff your own employees. People notice this stuff, folks.

Is it any wonder Google wants to prove that in-store purchases happen because of Google searches? Is it any wonder Facebook wants to communicate to your customer in your own retail store?

Facebook / Instagram / Pinterest / Twitter / Google / Verizon / Apple / Microsoft / AT&T / Comcast ... they're all lining up to collect tolls. If you do the hard work of actually convincing a customer to get into a car and drive to your store, and the customer actually walks into your store, Facebook would like to step between you and the customer and advertise ... and in the process ... Facebook wants to collect a toll. What did Facebook do to deserve a cut?

Our job, then, is to have a strategy to avoid tolls.

I know, that sounds impossible.

I know, Google and Facebook will tell you to ignore me! So will your boutique agency and large data behemoth that runs merge/purge for you. 

If I were to ask 100 marketers what their customer acquisition strategy is to avoid paying hefty tolls, maybe 5 could give a credible answer. The other 95 stare at you like you are an alien, they think I'm the problem.

I'm not the problem.

Every one of us runs a business that has customers who care about us. Those customers pay us, and they would continue to pay us if we didn't advertise at all. That's the goal. That's the customer we want. They're out there. We ignore them, instead chasing customers who respond via toll collection.

The mobile / social / digital / offline parasites are our problem. We need a strategy to find new customers at a low cost (better at no cost), or we're going to generate low volumes of profit while funding the mobile / social / digital / offline ecosystem in the process.

Can you articulate your low-cost customer acquisition strategy in one sentence, and then demonstrate via metrics that your strategy works? If not, it's time for a July Executive Offsite meeting (JEO) to develop a strategy.

Mega-Trend #2: How Will We Acquire A New Customer In 2020?

Want to avoid becoming a dinosaur? You'll need a low-cost customer acquisition program, no two ways around it.

Think about this for a moment. Your creative team does an amazing job of displaying one of your widgets. The widget looks beautiful, compelling, a must-have if there ever was one. A customer in Albany loves it, too, causing her to post an image of the item on Pinterest. There, on Pinterest, another individual also loves the item ... and Pinterest ... PINTEREST ... feels like they deserve to be compensated for helping spread the word on your behalf. If you want access to this customer, a customer generated because of the brilliance of your creative team (mind you), you need to pay Pinterest for this unique opportunity. That's called a "toll". Tolls lower your profit per new customer, and consequently, lower your overall profitability.

There's Macy's, always scrambling to play catch-up to others, focusing on omnichannel to a fault, obtaining few or no additional new customers in the process, while their hated rival (Nordstrom) acquires a half-million or more new customers a year through Nordstrom Rack stores. Sure, Nordstorm has to tack on a veritable plethora of fixed costs to build out these Rack stores ... but the strategy of realizing that the middle class is gone and the way to find new customers is to offer something that a lower-middle-class person can afford yields dividend, more than covering the fixed cost infrastructure necessary to build the customer acquisition platform.

See, a company like JCP, or Macy's, or J. Crew is facing a challenge ... their source of new customers come largely from middle class or upper-middle class customers ... the quantities of which are in decline. They can choose to acquire new customers through great merchandise (they all sell essentially the same stuff as the competition sells), they can attempt to acquire new customers by integrating channels (never seems to work, ask Circuit City, Borders, and countless others including J. Crew and JCP and Macy's), or they can follow customers into the economic toilet by offering a merchandising assortment that a lower-middle-class customer can afford.

Macy's chose omnichannel, years ago ... and are stuck in a rut today because of this attempt at acquiring new customers.

Nordstrom full-line stores are not growing, in quantity or in sales ... but their decision years ago to acquire new customers via Nordstrom Rack yields huge benefits today.

Make the right choice today, and you benefit in 2020.

Which brings us back to Mega-Trend #2:

• How Will We Acquire A New Customer In 2020?

Mega-Trend #1: Merchandise Productivity

Have you had an opportunity to read this blog ... the J. Crew Aficionada (click here)?

Here's somebody who is so passionate about J. Crew that she writes about the business. No mention of omnichannel, which is interesting. What is she writing about?

Merchandise!!!!

Frustration with merchandise ... check out this post (click here), and more importantly, check out the comments ... no mention of dissatisfaction with channel strategy ... but A TON of dissatisfaction with size, fit, style, quality.

You saw what happened with Gap (click here). Notice that Gap is not closing outlet stores. No merchandising problems there ... same company. There, the price/value proposition is appropriate for the customer being targeted. Notice that Old Navy is not closing stores. There, the price/value proposition is appropriate for the customer being targeted.

All of those brands are under the same umbrella (Gap, Gap Outlets, Old Navy) and are using the same systems and same omnichannel strategy. This tells us how important merchandise is. It's the number one mega-trend of the next few years. The customer only cares about merchandise. Do you sell something the customer wants to buy, at a price the customer wants to pay? It's that simple. And it's something we've ignored for the past five years, as we looked to align all of our channels around a mythical result that did not happen.

H&M focused on merchandise productivity, in the process reinventing fashion. Notice in the Gap article how their lead times cause them to not be able to react for maybe the rest of this year. Look what H&M did to their competition? That's what happens when you get merchandise productivity right.

Mega-Trend #1 is critical ... it's merchandise productivity.

You are a marketer. For the past decade, you've been trained to manage the transition from offline marketing to digital marketing. You've largely mastered this transition. The transition is over (though if you market to a customer < 35, the transition to mobile is just beginning). Now the second phase of the transition begins ... figuring out how to market the right merchandise to specific customer segments. Most of us do not possess this skill, heck, we haven't had to learn it. But those days are over. The companies that figure out how to merchandise to their customer audience, via marketing, via merchandising strategy, via an integration of the marketing/merchandising departments ... these are the companies that will enjoy gains in the next five years ... until the next mega-trend hits.

Gap To Close 175 Stores, Shutter 250 Corporate Positions. #Omnichannel!!!!!

Click here, friends.

The omnichannel movement is devastating in an environment of declining merchandise productivity. Sales decelerate, commodity item sales move online within the brand, causing stores to be even less productive. Eventually .... you close 25% of the footprint, and you forfeit $300,000,000 in break-even or unprofitable in-store sales that cannot be recouped online. The faster you digitize the business, the faster you move the sale of commodity-based items from in-store to online within a brand, and consequently, the faster you accelerate the closure of stores.

You don't read about this dynamic from vendors, do you?

You don't read about this dynamic from consultants, do you?

You don't read about this dynamic in trade journals, do you?

You don't read about this dynamic from research brands who invented the phrase "omnichannel", do you?

But you've been reading about this dynamic on this blog, for years.

The future is here.

I know, you don't care that I was right. You listened to the wrong people, and now you want advice to fix the problems they created.

If we are going to pursue an omnichannel strategy of bland sameness across all channels, then we must also craft a strategy of uniqueness within the retail channel. Otherwise, why would the customer ever bother to enter a store and be presented with digital wonderment in the first place? Notice that, as of today, Old Navy stores are not closing. Same omnichannel strategy ... one brand is imploding, the other succeeding. It tells you how irrelevant omnichannel strategy is. It also communicates, rather clearly, how important merchandising strategy is.

Merchandising Strategy. It's one of the three mega-trends.

E-commerce is slowly bleeding 2% off of retail comps, every single quarter. This requires exceptional merchandise productivity gains, in-store, to overcome the 2% bleed, and then generate the comp store sales increases necessary to offset inflation. We can only solve this problem with brilliant merchandising strategies that drive customers into stores. We won't accomplish this by demanding that the customer buy from a generic assortment in any channel.

This problem can be solved. Ignore the tactics that make vendors, trade journalists, consultants, and researchers money. Focus on the tactics that make your business profit.

The Three Mega-Trends

I probably need to write a booklet about the three mega-trends:

1. Outstanding Merchandise is the key to engaging a customer (i.e. getting the customer to buy something).
2. How Will We Acquire A New Customer In 2020?
3. How Will We Avoid Paying Tolls To Mobile/Social/Digital/Offline Parasites?

When you are planning your July Executive Offsite (the "JEO"), these should be the three topics you discuss. The topics cover all the bases.

Let's talk about the topics over the next few weeks.

Kohl's - I Cannot Ever Recall Seeing This Happen

Kohl's gives the Chief Merchandising Officer job to the Chief Customer Officer (click here).

Here's the quote you need to remember:

• "It became more clear everyday that these two things, customer engagement and product, are linked completely," he said in an interview.

The article describes two movements, happening at the same time.

1. The omnichannel theory is validated - props to the omnichannel folks. E-commerce and store ops are fused, seen now as one thing, reporting to a Chief Operations Officer. But this is not the central story - and that's an important realization. Omnichannel, as we know it, is part of Operations.
2. Priority is clearly assigned to a fusion of merchandise + customer experience. Think about that one for a moment.

In 2015, I've workd on 2.5 Merchandise Forensics projects for every 1.0 Customer Optimization project. There is a fundamental change happening across my client base (three years ago, I sold zero merchandise-centric projects, period), and it is not a change that is channel-centric. There is a realization that Merchandise, yes, Merchandise, is what fuels the customer experience.

I do not every recall an instance where a person without merchandising experience moved into the Chief Merchandising Officer position at a $100,000,000+ sized company. I've seen marketing gurus move into Executive Merchandising positions - but never the top of the pyramid.

I'm not saying this move is right/wrong - it's dangerous to predict the future, simply because it is nearly impossible to ever be right.

I am saying that there is an obvious trend that is shaping the future, and it is time that we pay attention to the trend - it is time to give the trend proportional attention:

• Merchandise fuels the customer experience.
• If we don't focus on merchandise, there is no customer experience, and there are no channels to integrate.

J. Crew: -10% Comps

Did you read this one (click here)? I gave J. Crew a lot of praise a few years ago, communicating how it was "all about the merchandise" and they were clearly succeeding on the merchandising front.

There are three mega-trends that are dominating my client discussions:

1. Can we increase Merchandise Productivity today?
2. How will we find New Customers in 2020?
3. How do we avoid the growing number of Tolls the mobile/social folks are placing on our businesses?

J. Crew's challenges deal with (1) and (2). Fashion often results in missteps and wild productivity swings, and fixes are time-lagged, meaning that if problems are fixed today, results won't be seen for six months, a year, or more. Just as important, with retail moving down-market at a breathtaking rate (Nordstrom Rack, Old Navy as examples), how does a company like J. Crew find new customers for the mid-market placement they occupy?

Again ... three mega-trends are dominating client discussions:

1. Can we increase Merchandise Productivity today?
2. How will we find New Customers in 2020?
3. How do we avoid the growing number of Tolls the mobile/social folks are placing on our businesses?

Your Co-Workers

Do you know who this woman is? 

I don't.

How often can you say the same thing about a co-worker you pass by in the hallway?

More on that in a moment.

I attended a conference earlier this year. One of the Executives at the conference said something interesting to me. We were talking about vendors. The Executive was frustrated with one particular vendor. I mentioned that the Executive could choose to spend less money with this vendor, and instead utilize a competitor. The Executive looked at me, and with the kindest possible look on her face, she issued the following statement:

• "But their staff are like co-workers to me."

The comment carried little weight ... month after month. Until late last week. Then I figured out why it seems like so many of my messages fall flat.

In so many cases, I am challenging you to make changes that I am confident will improve the profitability of your business. I wouldn't ask you to make the changes unless I had proof (via the client work I perform) that my recommendations generate profit. But then, for you to implement my changes, you need to work with your vendor partners ... often challenging the vendor to make changes.

In other words, I am asking you to do things that may cause discord with individuals you perceive to be co-workers of yours. You might have to tell your vendor co-worker that the individual is doing a poor job. You might have to tell your vendor co-worker to create a product that the vendor co-worker isn't capable of creating, or doesn't want to create. You might have to tell your vendor co-worker that you are going to spend less with his/her brand because spending less benefits your brand more.

Why would you want to hurt the feelings of a co-worker? You wouldn't want to do that, would you?!!!

Here's a fascinating tidbit for you. Let's run a quick quiz. Which project do you think I've sold more of in 2015, by a margin of 2.5 to 1.

1. Contact Strategy Optimization.
2. Merchandise Forensics.

The answer is (2), Merchandise Forensics.

Why is that interesting?

How many hours per week do you, the marketing professional, spend working with your merchandising and/or creative teams?

How many hours per week do you, the marketing professional, spend working with your vendor co-workers?

Of course you're going to ask me to perform Merchandise Forensics work for you ... that project isn't going to interfere with your pre-established vendor / co-worker relationship ... even if that relationship is costing your business millions of dollars of profit per year. With a Merchandise Forensics project, we're just looking at challenging your Merchandising Team, and you barely interact with those folks ... even though they are responsible for the stuff you are marketing to customers ... even though they are truly co-workers!

In the past fifteen years, the co-worker relationship changed. A twelve-person marketing department became a six-person marketing department with two-dozen vendor relationships managed by the remaining six individuals in the marketing department. 

Marketing has been outsourced, and in the process, the working relationship with marketing outsiders is deeper, more emotional, and more meaningful than the working relationship with the Creative Manager who is seeking optimal lighting during a photo shoot in Kauai - more close than the working relationship with the Buyer who must avoid being fired by accurately forecasting the sale of 973 widgets via perfect sell-through.

This working relationship creates an unusual and conflicting set of incentives. Fifteen years ago, your entire marketing department was incented to generate as much profit as possible. Today, with 70% of your marketing department represented by outside vendors, you have a dozen conflicting objectives. You must generate as much profit as possible, requiring you to obtain products and services at the lowest possible cost ... while your vendor co-worker must sell you additional products and services at the highest acceptable cost. 

I was at NEMOA in Spring 2014. A representative from a vendor you all know and trust saw me walk into a session. She called me over. And in front of my client, she mentioned how she took my (her) client to a Boston Bruins hockey game, and took the client out to dinner. She mentioned that her organization loves her clients, and treats them appropriately, with various perks. She then asked what, specifically, I do for my clients if I don't take the client to a sporting event or out to dinner.

"I generate profit for my clients".

But profit isn't enough for many of you. Name one time your Chief Financial Officer paid to take you out for Alder Planked Copper River Sockeye Salmon followed by a Major League Baseball game? Your vendor co-workers use emotional incentives to create a bond (smart idea). It's your money they're using to create the bond, but regardless, they treat you better than many of your actual co-workers treat you, be honest!! Sometimes, your Merchandising Team just yells at you, telling you that your email marketing program is pedestrian, criticizing your catalog mailing efforts ("you have no idea who to mail, a trained monkey could do a better job"). Who are you going to side with, when push comes to shove?

And vendors can (oh yes, this happens) align their services in such a way that maximizes vendor revenue ... if you mail more co-op names, you pay more in merge/purge costs, you spend more money on paper, you spend more money on printing, you spend more money on postage. Is it any wonder, then, that at an industry conference, your vendor co-workers all pay sponsorship fees to obtain speaking assignments where they sell a message that promotes increased marketing spend? Vendors would be crazy to question a co-op, because questioning a co-op may result in a client spending less with co-ops, which then trickles through the rest of the vendor ecosystem, hurting all vendors.

Do you understand the ramifications of the dynamic I just described?

Last week, I came to the realization that so many of us have better working relationships with our vendor co-workers than we have with in-house employees. We have no idea who the woman is at the beginning of the blog post, even though we have a responsibility to work with her to increase profit for the company we work for. Conversely, we have close relationships with vendor co-workers, and those relationships are fraught with conflicting incentives. Yes, the vendor should provide solutions that increase sales/profit, thereby allowing both parties to profit, but that isn't often the case (in reality).

Is it any wonder, then, that the message marketers constantly read is an omnichannel message promoted by the vendor community? And we have an emotional incentive to listen to this message, because the folks offering the message are more like co-workers to us than our actual co-workers.

Maybe you disagree. That's fair. Your circumstances may be different.

I wouldn't share this tidbit if I didn't keep running across variants of it.

The vendor community is embedded into your marketing department, that's just the reality of modern marketing. You likely have more vendor employees working to grow your business than you have actual employees. Their incentive structure influences what they ask you to do. Their aspirations influence the tactics they ask you to execute. Their desire to innovate influences how innovative you are.

This isn't a good thing.

This isn't a bad thing.

This is just a "thing".

But it is a "thing" that must be dealt with. For if we continue to value the vendor co-worker relationship more than the merchant/creative/finance co-worker relationship, then we will ultimately execute the wishes of our vendor co-workers. Maybe this is best for us. Maybe not. But we should at least think about the topic strategically, don't you think?

Use the comments section (or email me at kevinh@minethatdata.com) with your thoughts.