January 31, 2017

Want To Compete To See If You Are Best At Running A Business?

You want to compete? Good!

Then join me on March 30 (click here). Cost is virtually free, and you will be teamed with peers, tasked with growing the healthiest business in five years. Each member of the winning team will earn a commemorative keepsake - the MineThatData PickAxe.

I field a lot of questions about metrics.
  • "Which metrics should I leverage to grow my business quickly?"
  • "I don't like the way you defined your metric, could you define it my way and write a blog post about the way I define the metric, k-thanks!"
  • "Ok, I asked for a metric, you provided the metric, and now I have no idea what to do with the metric. What should I do?"
  • "You told me what to do with the outcome of the metric, and I don't want to do that. Could you tell me what the next most important metric looks like?"
This circular path of logic happens all the time.

Do you know why it happens?

It happens because the issue isn't metrics ... at all.

Think about it. We have more metrics today than we've ever had access to in the history of business. And yet, we wander the desert, looking for an oasis.

The goal of my portion of the VT/NH March 30 event is to demonstrate how every team playing our business simulation is interpreting the exact same data differently!

That's the key, my friends.

We all make different decisions when presented with the same evidence. That's a big deal. This is why metrics and analytics are not the answer. The answer to our challenges is a hybrid of creativity and business knowledge.

So join me on March 30 and test your creativity and business knowledge!

January 30, 2017

Simple Analytics To Explain Why Traditional Retail Is Imploding

Life doesn't have to be hard, and you don't have to "leverage" Big Data to understand what is going on.

Do me a favor - run three analyses for me.

Analysis #1:  Take all customers who only purchased from Retail Stores in 2015. Measure where future dollars were spent in 2016. Then re-run the analysis for 2010 / 2011.

  • 2015 Retail Only Customers = $90 in stores in 2016, $30 online in 2016, $120 total.
  • 2010 Retail Only Customers = $115 in stores in 2011, $15 online in 2015, $130 total.

Analysis #2:  Take all customers who only purchased online in 2015. Measure where future dollars were spent in 2016. Then re-run the analysis for 2010 / 2011.

  • 2015 Online Only Customers = $50 in stores in 2016, $70 online in 2016, $120 total.
  • 2010 Online Only Customers = $35 in stores in 2011, $95 online in 2015, $130 total.

Analysis #3:  Take all customers who only purchased online+stores in 2015. Measure where future dollars were spent in 2016. Then re-run the analysis for 2010 / 2011.

  • 2015 Online+Retail Customers = $60 in stores in 2016, $60 online in 2016, $120 total.
  • 2010 Online+Retail Customers = $80 in stores in 2011, $50 online in 2015, $130 total.

This is a common outcome. There are two trends happening.
  1. Customers are spending less today than five years ago.
  2. Customers shifted spend away from stores and instead are spending more online.

(1) is a Merchandise Productivity issue. There are many aspects to merchandise productivity, of course, and competitive challenges are key to merchandise productivity. If the competition has a better value proposition, then your merchandise productivity will decline.

(2) is a Channel Shift issue. Notice that even after accounting for the drop in Merchandise Productivity, retail stores are significantly under-performing. The customer shifted from buying in stores to buying online, to some extent.

(2) is a big deal, because this is the portion of store closures that we are causing ourselves. We are told that we must be "digital", so we calibrate our businesses to prioritize digital, we practically beg our customers to shop online instead of visiting stores ... and then we're stunned when the customer shops online and not in stores and we lack foot traffic.

(2) causes reduced foot traffic. (2) causes "brand" to close weak performing retail stores. This further reduces foot traffic across all stores in a mall, causing other "brands" to close stores, further reducing foot traffic.

(2) causes us to lower prices in stores to drive more traffic into stores. Think about the logic of this one for a moment. We spend a half-decade begging a customer to shop online, and the customer listens to us. Then the customer doesn't visit a store, so we respond by lowering prices in stores via discounts and promotions to get the customer back into a store. This reduces profitability, which causes us to close stores.

To recap.
  • Business isn't great.
  • But after accounting for the fact that business isn't great, we spent a half-decade begging customers to shop online.
  • Customers listened, they shopped online.
  • Retail sales declines.
  • Sales declines rendered below-average stores to become unprofitable.
  • Now that we trained customers to shop online, we try to re-train customers to go back into stores and shop, and we offer the customer 40% off to 50% off to visit stores once again.
  • 40% off and 50% off in stores is an unprofitable proposition.
  • This causes us to close more stores.
  • When we close stores, we reduce foot traffic across the rest of the mall.
  • With less foot traffic, other "brands" have to close stores, reducing foot traffic across the rest of the mall.
  • With less foot traffic, we increase discounts/promotions to increase foot traffic.
  • Because we need to have an integrated voice across channels, out discounts have to be applied online as well.
  • By offering the discounts online, we change customer expectations of us, making it very hard to sell at full price again.
Simple analytics can be used to demonstrate that we are killing ourselves.

Amazon is not the enemy.

We are the enemy!

January 29, 2017

Retail: We Got It All Wrong, Didn't We?

Several years ago, a retail CEO contacted me. This individual couldn't understand why retail comps were great and online sales weren't growing much. I had a simple response.
  • "Maybe it is because customers love your stores and actually want to visit your stores?"
Today, this company is healthy.

Most of traditional retail is not healthy.

On Twitter, I frequently ask readers a common question.
  • "Who benefits by getting the reader to do what the author of the article advocates?"
A few weeks ago, the National Retail Federation (via Shop.org) spoke of an article about JCP. The article talked about how JCP announced store closures. The headline, however, said that JCP feels that stores are an important part of an omnichannel strategy. This means that we must ask ourselves a question.
  • "Who benefits by getting the reader to believe that stores are an important part of an omnichannel strategy independent of the fact that many traditional retailers are closing stores because their stores have become unprofitable?"
I think we messed up retail. Every one of us, me included.

Here's what we messed up.

We never, ever, ever considered that the most important thing about being a retail brand is having a store full of shoppers - a store filled with vibrant noise and energy.

When we integrate the website to align with the store, we discourage the customer from visiting a store.

When we align prices across channels and align the experience across channels, we discourage the customer from visiting a store.

When we strongly encourage a customer to interact with us "digitally", we discourage the customer from visiting a store and worse, we encourage the customer to interact with Amazon.

When I performed retail projects in 2007, 2008, and 2009, "digital" activities drove traffic into stores.

When I perform retail projects in 2014, 2015, 2016 and today, "digital" activities are more likely to drive "digital" outcomes than in-store outcomes compared to 2007-2009. This is a sign that digital prowess improved. Retailers have become better at "digital" marketing. And by becoming "better", digital dissuades customers from visiting stores.

As store traffic decreases (#digital), weak stores become unprofitable.

Retailers close weak stores.

When retailers close weak stores, other stores in the same shopping center / mall lose foot traffic. Their performance weakens. They become inclined to close stores. The process snowballs. All traditional retailers are hurt by the "first movers" - the weakest retailers who close stores.

Amazon is not big enough to cause this dynamic to happen alone.

Our perpetual lust to "be digital" causes this to happen.

Marriage to digital is causing the ruthless optimization of traditional retail.

Digital strategy drives customers online, dissuading store visits. Retailers respond to a lack of store traffic (which retailers caused) by discounting merchandise. Discounts and promotions reduce profit. Reduced profit weakens poorly performing stores. Poorly performing stores are closed, reducing traffic for all other retail brands, weakening their performance, causing other brands to close stores, reducing traffic for all other brands.

It's conceivable that 30% to 50% of retail square footage is going to disappear (short-term).

We caused this. All of us. Our desire to be #digital trained customers to not visit stores.

From 2017 - 2027, the smartest retailers will figure out how to get customers to get in a car and visit a store. This, not #digital, is the future ... if we want our stores to succeed. If not, keep pursuing a #digital strategy - that's fine. But don't expect traditional retail to be healthy.

January 26, 2017

Now That You Are Interested!!

Yup, you are interested - you want to compete and show your business skills and be the best in the business simulation at the VT/NH event on March 30 - you're ready to sign up (and hotel space is being gobbled up as we speak) - so you want a link where you can register, right? Right?!

I have a link!!

See you on March 30!!


Or a lack thereof ...

There are a handful of large email service providers.

There are a handful of large paid search vendors.

There are a handful of large database providers.

There are a handful of large campaign management software providers.

There are a handful of large web analytics providers.

There are a handful of printers.

There are a handful of catalog co-ops.

There are a handful of credible digital agencies.

There are a handful of e-commerce sales solution providers.

There are a handful of attribution vendors telling us "what works". Let that one sink in. We all measure "what works" based on math authored by a hundred or two-hundred people. My goodness.

We've spent nearly 15 years outsourcing our employees to the handful of providers outlined above.

Is it any wonder, then, that so many brands look and feel "the same"?

And in a world where everybody looks and feels the same (you can perform the same exercise for merchandise, for creative, for inventory management, for ERP solutions, for robotics in the warehouse, and on and on and ...), offering practically the same merchandise at the same price, should it surprise us that 30% or more of e-commerce goes to Amazon?

If there were some level of diversity, any diversity, wouldn't there be more non-Amazon winners (and losers)? But since everybody is losing to Amazon in some manner, don't we need more winners? Wouldn't some level of marketing and brand diversity help us compete?

Capitalism is slowly optimizing e-commerce ... and with optimization comes a complete lack of diversity. Our ecosystem is being starved, and we are the ones starving ourselves. We need more brand diversity, more product diversity, more marketing diversity.

January 25, 2017

VT/NH on March 30: A New Way To Foster Business Growth

Click here my loyal readers - spend virtually nothing and absorb a full day of knowledge in the process. Not a bad deal, eh?

Can I tell you a story?

A few months ago, I spoke at a conference. I had around 115 slides for how a business can acquire new customers at low cost or no cost - variants of what I presented last Spring at the VT/NH event. Stuff like this:

My talk lasted about 75 minutes. As I meandered through the slides, one thing became clear ... the audience wasn't buying what I was sharing with them. Speakers can tell when the audience is not buying the message. Heads shake back and forth. People whisper to attendees near them. One person had a laptop in front of her ... she raised her hand and said "I'm looking at the company you just mentioned and they are promoting clearance products today, so obviously whatever they were doing didn't work. Are all of the ideas you are sharing today going to turn out like this?"

I spent about eighteen months preparing and sharing my Low Cost Customer Acquisition thesis, sharing the ideas at conferences here and in Europe. If there was one comment, one piece of feedback that was consistent across venues and languages, it was this one:
  • "That specific idea will not work at my company. What else can you share?"
I learned (the hard way) that by sharing 100+ ideas, I was giving the audience a hundred opportunities to say "no". The audience could reject each idea, and then say "next" ... and as the next idea appeared, they could reject that idea, and then say "next". Again and again and again. The audience was being "strategic" of course. But the presentation format allowed the audience to constantly say "no" ... over and over and over.

That's the case at every conference, come to think about it. The presenter works hard to come up with a ton of ideas, and then the audience sits back and rejects the ideas. "That specific idea will not work at my company, because Betty will never let anybody do that and to be honest our brand is unique and our brand is special so all of the ideas being shared do not apply to our case study."

So maybe it is time to do something different?

On March 30, I will spend two hours leading the audience through a business simulation. The room will be divided up into between 10 and 20 teams.

Each team will be given an investment budget.

Each team will be asked to market three unique products.

Each team will be told the cost of goods on each product.

Each team will be asked to set the price of each product.

Each team will allocate resources between offline marketing, online marketing, and mobile/social marketing. I will enter every business plan into the simulation spreadsheet.

Once each team sets up their business/investment plan, the simulation will generate a profit and loss statement for each team. Each team will be able to see how they performed, and each team will be able to see how every other team performed. If you set your prices really low, you might gain market share (at the expense of other teams) but profit might be awful.

I will host a "Business Review" at the end of each year ... sort of like those reality shows that host the participants in the reality show so that the participants can answer audience questions and argue a bit more for ratings purposes.

Then, your team will craft your investment strategy for Year 2. You will know what every other team did the prior year, and you will know how you performed the prior year.. As you craft your strategy, every other team will craft their strategy. When the strategies have been crafted, we run the simulation again, producing Year 2 outcomes. Again, you'll get to see how you stacked up against the competition.

We'll repeat the process for Year 3, for Year 4, and for Year 5.

The team that produces the "best outcome" after Year 5 wins the simulation. What is the "best outcome"? It will be an outcome that balances sales growth with profitability ... sort of like what you are asked to achieve each year for your business.

Each member of the winning team earns a coveted MineThatData PickAxe!

At the end of the simulation, we'll discuss how you as a Business Leader reacted to the metrics you were seeing. Why did you react a certain way in response to what "the competition" was doing?

We'll talk about metrics ... the metrics you observed, the metrics you wish you had, and your response to the metrics you actually had. We will discuss the role metrics play in growing a business, and we will discuss the role decision making and business smarts and business courage play in growing a business.

We will have fun!

This is going to be so much more enjoyable than listening to a speaker drone on for two hours about Low Cost Customer Acquisition Programs that you know you have no intention of ever implementing. This is going to be so much more enjoyable than hearing a talk from a vendor executive who paid $20,000 to get access to the audience.

So why not be part of something different, unique, and enjoyable?

Why not try to outwit, outplay, and outlast the competition? Wait. That sounds vaguely familiar.

January 24, 2017

Seven Days To Go!!

Still wondering if business was good/bad in Oct / Nov / Dec and January-to-date? Join the MineThatData Elite Program and find out how your results stack up against other participants.

Email me (kevinh@minethatdata.com) your questions.

Participation deadline is January 31.

Data is due February 17.

Analysis completed on or before February 25.

January 23, 2017

Profit per New Customer

Customer Acquisition is the one place where your vendor partners get to extract a pound of flesh. You need new customers, and you've been trained to believe that channels are the place where customers reside - so you pay a toll and feel like you did your job.

I'm always amazed by the feedback I get.
  • "We pay $69 per new customer."
Then I'll ask if that is marketing cost, or if that is profit (loss)?
  • "Marketing cost."
Then I'll ask why the individual uses marketing costs instead of profit per new customer?
  • "Because I have reporting that tells me how much I spent, and how many orders I generated."
Then I'll ask if the customer has a break-even, one-year, two-year, three-year, or longer payback horizon?
  • "I don't know."
I like to use "Profit per New Customer" instead of (Marketing) Cost per New Customer, for obvious reasons.
  • Every employee is forced to calculate profit ... and in modern marketing, we've gone from 8 metrics to 800 and too few people ever calculate profit ... which is the whole reason we're in business.
  • In order to calculate profit, every employee must develop a relationship with the Finance team. This is an important relationship.
  • Every employee must feel accountable when looking at a ton of negative (loss) figures.
  • Every employee must figure out how much downstream profit is required to pay back the investment in the new customer and still yield 10% or better EBT (Earnings Before Taxes).
Those are the reasons I like to use Profit per New Customer. I hope you will consider using the metric as well.

January 22, 2017

Readership Comment

Last week, I talked a bit about pricing. Here are the articles.
There were themes in readership comments ...
  • Can you show me a strategy that is guaranteed to work for my specific brand?
I wish I could do that.

That's your job. Your company pays you to find solutions that will work for your brand.

If you don't have a solution for your brand, hire somebody who does - and then be accountable if that person implements ideas that don't work.

We are struggling with creativity.

Here's my thesis. We stripped creativity out of our business model over the past fifteen years. "Digital Strategy" and "Competition" resulted in removing anything that does not have a short-term, immediate, measurable return on investment. Google Analytics tells you if customers from a Referring URL convert or bounce. Google Analytics does not tell you if a half-naked half-offensive half-funny cartoon figure from Duluth Trading Company attracts new customers. So we pick a strategy including Pinterest because we can easily measure if the strategy works in the short-term. We don't develop an overarching creative strategy because our measurement systems will fail to measure long-term return on investment.

And yet, overarching creative strategies matter a lot.

I'm asking you to step away from short-term return-on-investment.

I'm asking you to develop an overarching creative strategy for you "brand".

Send me a message and tell me why I'm wrong ... what have I failed to consider?

January 19, 2017

Pricing, Profit, Who You Are

There are many ways to run a successful business.

Facebook makes a few dollars from a billion users.

I earn $25,000 from a handful of users.

For many of my clients, the approach has always been to earn a lot of profit from a small number of users. The math goes something like this, per order (before subtracting marketing costs).
  • Net Sales = $100.
  • Cost of Goods = $40.
  • Gross Margin = $100 - $40 = $60.
  • Add Pick/Pack/Ship Revenue = $15.
  • Less Pick/Pack/Ship Expense = $10.
  • Contribution = $65.
Amazon and other brands decided to play a different game.
  • Net Sales = $80.
  • Cost of Goods = $60.
  • Gross Margin = $80 - $60 = $20.
  • Add Pick/Pack/Ship Revenue = $5 
  • Less Pick/Pack/Ship Expense = $10.
  • Contribution = $15.
Amazon was willing to generate $15 of contribution per $80 order, allowing their value proposition to be more valuable to a lot of customers.

You were willing to generate $65 of contribution per $100 order, causing your proposition to be valuable to a small number of customers.

Always remember that Amazon could generate a profit anytime it wanted to - instead it invests future profits in current operations.

Here's another interesting tidbit - Amazon spends +/- 5% of net sales on marketing. A typical catalog client might spend between 25% and 30% of net sales on marketing.

In other words, we have consciously chosen who we are. A traditional catalog brand chose to generate hefty gross margins, and then spent gross margin dollars on catalog marketing. Amazon chose to spend minimal dollars on marketing, instead spending on future technology and merchandise assortment, allowing Amazon to appeal to a large audience willing to generate small amounts of profit.

The problem arises when the traditional catalog brand and Amazon intersect on comparable merchandise. The customer will generally pick the better value proposition (Amazon). Hence, their p&l isn't impacted by this decision.

But your p&l is impacted by this decision. Your sales decline, and your fixed costs don't change. Bad news. So you change your value proposition - 20% off plus free shipping.
  • Net Sales = $80.
  • Cost of Goods = $40.
  • Gross Margin = $80 - $40 = $40.
  • Add Pick/Pack/Ship Revenue = $0.
  • Less Pick/Pack/Ship Expense = $10.
  • Contribution = $30.
Just like that, you're making less than half as much per order as you did in the glory years. And worse, you "cheated" - you went from a Tier 1 strategy to a Tier 5 + Tier 6 strategy ... now you cannot go back to Tier 1 without a negative hit to net sales.

Will you generate more than 2x as many orders to make up the contribution loss? Maybe.

Now we've changed "who we are". We're heading toward lying about prices. Next year we need to be 30% off to generate the same net sales level, then 40% off, then the 50% off bloodbath of 2016.

Think about iOS vs. Android for a moment. iOS is able to charge more for the exact same device, allowing Apple to print money. Yes, Android has market share, but of what value is the market share if there isn't much profit associated with it? Apple has a minority market share and a majority of the profit.

This is the decision we're all being forced to make, courtesy of Amazon.
  • Do we want to be iOS, small market share / tons of profit?
  • Do we want to be Android, large market share / minimal profit?
Who do we want to be?

When we offer 30% off plus free shipping, we're trying to have it both ways ... we want the profit of iOS and the market share of Android ... we're buying time hoping to find a path to iOS in the future.

Wal-Mart went large market share / minimal profit. Retail adapted.

Amazon went large market share / minimal profit. You will adapt.

But in order to maintain a large amount of contribution per order, something has to change.
  1. You either shift on the Pricing Tier strategy and consistently employ a strategy that yields many customers and minimal profit per customer.
  2. Or you create a Unique Point of View that yields a Low Cost Customer Acquisition Program that allows you to generate a ton of contribution per order (but with a minority of customers).
In other words, you pick iOS or you pick Android. 

What we've been doing for the past five years is an average of the two ... and that strategy isn't working.

We have to decide who we are.

January 18, 2017

Competing With Amazon

Recall our eight pricing tiers (you might have 38, that's fine, there's no right/wrong answer to this)?
  1. Full Price.
  2. Liquidations.
  3. Specials.
  4. Rewards.
  5. Shipping Promotions.
  6. Promotions.
  7. Inconsistent Pricing.
  8. Lies.$
Here's a question I frequently receive from companies competing with Amazon.
  • "How do I compete with Amazon?"
Good question!

Amazon largely combined product depth with (1) (3) (4), with low prices being core to (1). Better yet, they use multiple sellers of the same item to drive down price ... the sellers may all leverage (1) as a strategy, but then the customer sees a very low price for (1), which accomplishes the same tactic that an individual brand leverages with (6).

Therein lies the problem. We cannot compete with Amazon because we don't run a marketplace where competition drives down the apparent "full price" of an item.

We see the impact of this tactic in Amazon Prime. Amazon can sell at full price (1) albeit a low price because of marketplace factors (in many cases), which drives down the price, allowing Amazon to charge for shipping (Amazon Prime), which acts as a reverse of (5), a "(-5)" if you will. But the net of (1) and (5) and fast shipping and a broad merchandise assortment trumps anything we (as an individual brand) can do.

In other words, we pay $100ish up front for Amazon Prime, then we order 50 times a year yielding $2 for shipping. When we buy a widget ...
  • We pay $49.99 for the Widget.
  • We pay $2.00 for Shipping.
  • We get the item in two days.
  • Cost of goods is $30.
  • Amazon might make $12 after factoring in a $10 shipping cost (49.99 - 30 + 2 - 10).
Now, our individual brand is selling the widget for $60 with a $30 cost of goods. And we used to charge $15 for shipping that cost us $10. So we used to make (60 - 30 + 15 - 10) = $35 on this item.

So we run a 20% off promotion in order to "compete" with Amazon. $48 - $30 + $15 - $10 = $23 profit per item. We need a 52% increase in unit volume to overcome the loss in profit.

But shipping isn't competitive either. So we offer 20% off plus free shipping. $48 - $30 + $0 - $10 = $8. We're making $8 per item, meaning we have to sell 338% more items to overcome the loss in profit. Well, that ain't happening, is it?

Worse, we're at 20% off plus free shipping, so we've destroyed our ability to sell at full price. We broke our promise and we lost money in the process.

So the secret to competing with Amazon isn't to compete with Amazon, because you can't compete with Amazon. You have to do something fundamentally different.

You could outsource commodity items to Amazon and let them take 30% off the top (which is not fundamentally different than a 30% ad-to-sales ratio). You become a supplier to Amazon, a vendor if you will.

Or you could move into rewards (4) and create compelling programs that enable you to give benefits that the customer does not receive from Amazon.

This is why I consistently speak about creating a Unique Point of View that results in Low Cost Customer Acquisition Programs. We have to do stuff that is outside the realm of Amazon, stuff that allows us to charge a premium. And I realize this is risky stuff that is not likely to work. But Amazon is using the Tier strategy above to lock you out of subsequent business from customers. So you have to do something different, something outside of the Tiers outlined above.

January 17, 2017

Breaking a Promise

Yesterday, I talked about eight pricing tiers (you might have 28, who knows, no right/wrong answer here).
  1. Full Price.
  2. Liquidations.
  3. Specials.
  4. Rewards.
  5. Shipping Promotions.
  6. Promotions.
  7. Inconsistent Pricing.
  8. Lies.
It has been my experience that companies that break a promise across pricing tiers are companies that are set up for long-term struggles.

Think about JCP. They moved down the chain, focusing primarily on (6) and (8) for success. Over time, they built a customer base that loved (6).

Then JCP broke the promise. They offered everything at full price (a low price, but still, the low price became the full price). Sales dropped 30%.

Notice that sales didn't (and haven't) recover when JCP went back to business as usual.

You could look at Lands' End under Sears ownership ... they promised to never artificially inflate a price to create a sale ... Sears undermined that strategy, moving the company from (1) to (3) and (5) and (6). Once you move a customer down the pricing tier hierarchy, it is very difficult to move the customer back up to the top of the hierarchy.

January 16, 2017

The Eight Tiers of Pricing

Ever feel like Amazon is putting their big thumb on top of your comparatively tiny business? Yes? Well, that's the impact of pricing and merchandising strategy.

Based on my experience, there are Eight Tiers of Pricing. Your mileage will vary. Companies happily pick and choose from each tier.

Tier 1 = Full Price. This, of course, is my favorite tier. It is the realm of honesty. You have a price, you honor your price, and you do not cheat prior customers who may have paid more. You'll see a lot of full price activity among companies that have a "healthy brand". In other words, if your company is respected and customers trust who you are and your company behaves in a consistent manner, you'll be able to charge full price for your products/services. By the way, full price may well mean low price (Wal-Mart, Amazon).

Tier 2 = Liquidations. When you buy 10,000 widgets and the customer only purchases 7,000 widgets, you have to do something with the remaining 3,000 widgets. This is where liquidations come into play. The $49.99 widget is ultimately sold for $29.99. This is a necessary tier, but a dangerous tier. The temptation, of course, is that you get to see how well an item sells when it is discounted. This causes the business leader to "think strategically" about what "could" happen if prices were always low, or what
"could" happen if a promotion was applied to a purchase.

Tier 3 = Specials. This is like going to your favorite restaurant and finding out that Prime Rib is $34.95 instead of $39.95 because it is Valentine's Day. It has been my experience that the most successful clients I work with leverage a combination of Tier 1, Tier 2, and Tier 3 in their core strategy, with Tier 3 applied to specific items at specific times.

Tier 4 = Rewards. Think about flying on United, for instance. You earn miles, and after you earn "x" miles, you are rewarded with perks - maybe a free upgrade to first class, maybe a free flight (conditions may apply). Regardless, the "brand" maintains pricing integrity while allowing best customers to pay less. Proprietary Credit falls into the Rewards category - the customer gets a perk for using Proprietary Credit (i.e. pay later or points or whatever). Gamification falls into rewards - download an app and score 10,000 points and you unlock something or you purchase in-app allowing you to perform better - all forms of rewards.

Tier 5 = Shipping Promotions. For e-commerce, of course, but free shipping is a fundamentally different tier because it does not impact the price of the item being sold but instead discounts a service provided to the customer. Many companies offer free shipping. Amazon does the opposite, tying fast delivery to paid shipping.

Tier 6 = Promotions. Ah yes! The realm of the modern retailer. 30% off all Outerwear, today only! Then tomorrow all merchandise is 40% off. Promotions destroy pricing integrity, and worse, promotions train the customer to shop when promotions are offered. Early on, promotions work for the brand. As time passes, the brand works for promotions. Sometimes promotions play a valuable role - giving a new customer 20% off a cable contract if the customer signs up for a year, or by bundling services (internet + cable). But in 2017, promotions are more a reflection of brand health than a strategic marketing tactic.

Tier 7 = Inconsistent Pricing. You'll see this in car sales and you'll see this in vendor services. Go talk to Adobe about pricing for a web analytics solution. Do you see transparent pricing posted anywhere (click here)? It's always fun to learn that Client #1 paid $88,000 for the exact same solution that Client #2 paid $58,000 for ... and each client is the same size. The seller intentionally squeezes profit out of "dumb" customers. Or worse, go to Wal-Mart sometime. This happened to me last week. A ten pack of batteries was $6.47 in the battery display, but was $6.88 next to a toy that required the batteries. Amazon leverages inconsistent pricing. Hotels are big culprits of inconsistent pricing, as are airlines.

Tier 8 = Lies. Lies are common in marketing (often called a "brand story" instead of a "lie"). Lies may include the $89 widget that is sold for $19.99 (but wait, there's more ... we'll give you two widgets and a wudget for just $19.99, plus shipping and handling ... then we learn that "handling" is $8 and we have to wait 4-6 weeks for delivery). Nobody is buying the item for $89.

I'm sure there are countless examples that I missed. But this is how I like to think about pricing. It's been my experience that a company can be healthy operating in any tier, as long as the company is consistent about the tiers they operate in. Those old TV commercials (but wait, there's more) worked because the brand always operated in Tier 8.

More on the topic tomorrow.

January 15, 2017

It's Time!!

It's time for the next run of The MineThatData Elite Program!!

Have you been wondering if you are getting accurate information about what happened in October, November, December, and January (to date)? Some sources tell you business was great. Press releases tell you that traditional retail is struggling. Amazon is smokin' hot.

By participating, you get to see how you stack up against other participants, in an anonymous fashion.

For the cost of a Woodside Research white paper on the future of omnichannel machine learning in a mobile world dominated by social shopping, you'll get to see actual data about how actual companies fared.

What would stop you from participating?

Contact me now (kevinh@minethatdata.com) to join before February 1. Data is due by February 17, and the analysis will be delivered by February 25 or sooner.

January 14, 2017

Are You In Phoenix In February?

If you are within a few hours of Phoenix in February, let's get together and talk business. Send me an email (kevinh@minethatdata.com) and we'll pick a time to get together.

January 12, 2017

Gliebers Dresses: Roger's Dresses

Yes, this is part two of this episode. And if you don't like business fiction, then read this article about how Macy's spent a decade destroying their business (click here).

Setting:  The Gliebers Dresses Executive Conference Room. Meredith Thompson is conspicuously absent.

Glenn Glieber (Chief Executive Officer): Well, Meredith isn't here, but we should get started. The document hanging on the wall tells us we have to start meetings on time.

Pepper Morgan Pressley (Chief Marketing Officer): We're meeting because of the fit Meredith threw yesterday. She should be here.

Lois Gladstone (Chief Financial Officer): She'll be here. I saw her meeting somebody at the security entrance.

Roger Morgan (Chief Operations Officer): Is she meeting somebody from Woodside Research? How come I wasn't told?

Lois Gladstone: Meredith was really hot yesterday.

Pepper Morgan Pressley: It's like Roger punched her in the solar plexus.

Lois Gladstone: Well, it's like the customer punched us in the solar plexus. You can't keep printing eight hundred dollars of profit a year and think everything is just fine. It is ok for Roger to recommend changes.

Roger Morgan: It is?

Pepper Morgan Pressley: It would be nice if the ideas were your own ideas.

Roger Morgan: Nobody listens if the ideas are my own. That's why I promote the reputation of a talented research brand. A real Leader leverages the ideas of a Thought Leader. Then you have somebody to blame if things don't work out.

Meredith Thompson walks into the room with an unidentified man wearing a three-piece suit. The man carries an old-school / worn leather briefcase. Meredith and the man sit down.

Roger Morgan: This dude doesn't work at Woodside Research.

Meredith Thompson: I thought I'd bring an old friend into the room.

Pepper Morgan Pressley: Why is Winston Jennings here?

Meredith Thompson: For those of you who don't know him, this is Winston Jennings, long-time catalog branding expert. He consulted with us back in 1988. And 1991. 1994. 1998. 2002. 2003. 2006

Winston Jennings (Catalog Branding Consultant): 2005.

Meredith Thompson: 2005. 2008. Then we stopped bringing Winston in.

Pepper Morgan Pressley: That's about the time Roger started trusting Woodside Research.

Roger Morgan:  Bingo!

Winston Jennings: Anyway, I told my daughter Haylee to have fun at her sixteenth birthday party and I got on the first plane I could get on when Meredith told me that you were thinking of selling on Amazon. I guess my first question is, "what is wrong with you"?

Lois Gladstone: We made eight-hundred-and-twenty-four dollars of pre-tax profit last year.

Winston Jennings: That's better than most of my client base. If I were grading you on a curve, I'd give you a B-.

Glenn Glieber: Why thank you!

Lois Gladstone: No, no, no. That's not good enough. We need to generate ten percent pre-tax profit if we ever want to accomplish our goals.

Winston Jennings: Those are lofty goals!

Lois Gladstone: No they're not.

Roger Morgan: So you don't like the idea of selling on Amazon?

Winston Jennings: Of course not. It's not a best practice.

Roger Morgan: It's simple. We ship products to Amazon. They do all the hard work, and they collect about 35% of the sale price. On a $60 dress with a $25 cost of goods, we're looking at giving Amazon $21, we get $14, and then it will cost about $5 to ship the item to Amazon. We generate $9 variable profit on $60 sales. Tell me what the downside is?

Lois Gladstone: I like it!

Winston Jennings: Well, you've given Amazon control over your business for one. It's their customer, not your customer.

Meredith Thompson: Go Winston, Go Winston, Go Winston!!

Roger Morgan: We get name and address. That's not bad. And profit. That's important, too.

Winston Jennings: Are you going to sell the same items on Amazon and in your catalog?

Roger Morgan: No. Well, unless Meredith blocks me. Then I may have to sell the same stuff.

Winston Jennings: See, folks. See? Here goes the death spiral. You pull those items out of the catalog and next thing you know, you lose all of your postage and printing discounts. You lose out on cross-shopping. You sell a portion of your assortment. All of this brings your circulation levels down. Your vendor partners aren't going to like any of that.

Lois Gladstone: Who cares what our vendor partners think? We run our business for our purposes. Last year, marketing vendors earned thirteen million dollars off of the execution of our business. We earned eight-hundred-and-twenty-four dollars. Shouldn't we prioritize our return on investment over the thirteen million we pay marketing vendors?

Meredith Thompson: The way you word that makes it sound really bad.

Lois Gladstone: It is really bad. Why do marketing vendors get to make thirteen million from operations and we make nothing?

Winston Jennings: It's not the fault of vendors that you aren't profitable. It is your fault. Be accountable.

Pepper Morgan Pressley: You might want to show us a bit more respect.

Winston Jennings: I call 'em like I see 'em. That's the job of a consultant. 

Pepper Morgan Pressley: What should we be doing better?

Winston Jennings: Follow best practices. Do what your vendor partners tell you to do.

Pepper Morgan Pressley: Mother of God.

Winston Jennings: You need to protect your brand. This is YOUR customer. Why would you ever outsource customer management to Amazon?

Roger Morgan: Because they are better at managing customers than we are.

Winston Jennings: Nonsense.

Roger Morgan: They sell a hundred billion dollars of stuff a year. We generate eight hundred dollars of profit.

Meredith Thompson: I'm not selling them my merchandise.

Roger Morgan: Then don't. Sell me your merchandise.

Meredith Thompson: What?

Roger Morgan: If we sell a dress for $60 and it costs us $25, then let me buy the dress from you for $28. You make $3 by selling the dress to me. I subtract the $21 I pay to Amazon and the $5 I pay to ship merchandise to Amazon and the $28 I pay you, and I get to keep $6.

Lois Gladstone: We get to keep $6.

Roger Morgan: No, I get to keep it.

Meredith Thompson: Why?

Pepper Morgan Pressley: I see where he's going with this.

Meredith Thompson: I don't.

Pepper Morgan Pressley: He's going to view this as a separate line of business. Or worse, his own brand.

Roger Morgan: You know me well.

Lois Gladstone: Are you saying that this is a new brand? Like "Roger's Dresses"?

Meredith Thompson: Don't you dare.

Roger Morgan: I like the name!

Lois Gladstone: Roger's Dresses!!

Roger Morgan: As a startup, I could get money from the sharks on Shark Tank!

Meredith Thompson: No, we're not doing that.

Roger Morgan: We're not doing Shark Tank again?

Meredith Thompson: I can't let you start your own business on Amazon with my merchandise.

Roger Morgan: Why not?

Meredith Thompson: Because it is MY merchandise!

Roger Morgan: I'd buy it from you, making it MY merchandise!

Pepper Morgan Pressley: I can't believe I'm saying this, but I agree with Roger.

Lois Gladstone: Me too. Meredith, you'll make more money selling merchandise to Roger than you'll make selling it under the Gliebers Dresses name.

Winston Jennings: What is wrong with you people?

Lois Gladstone: We made eight-hundred-and-twenty-four dollars of profit last year. That's what is wrong with us. Something needs to change.

Winston Jennings: Don't you understand? You are moving away from the catalog business model. You can't do that! Vendors depend upon you. What happens if everybody starts to make the kind of decisions you are thinking about? Think about the vendors. The vendors, folks. Think about them. They're the backbone of the industry.

Roger Morgan: Then vendors make less but brands diversify and the expense structure shifts away from vendor support to Amazon support. In some ways, it's like Amazon does free marketing for Roger's Dresses.

Glenn Glieber: I love free marketing!

Meredith Thompson: Winston, you were supposed to talk everybody out of this. Now we have a new brand. You are welcome to leave.

Winston Jennings: You don't have to implement Roger's Dresses. Just don't sell your merchandise to him.

Roger Morgan: I'll go directly to Meredith's vendors. Then I don't have to pay a commission to Meredith.

Winston Jennings: You shouldn't have silos.

Roger Morgan: Amazon has Amazon and Zappos. Both sell the same stuff. Why is it ok for Amazon to have silos but we shouldn't innovate?

Winston Jennings: This isn't innovation. This is cheating. Do the hard work to get your catalog ducks in order.

Roger Morgan: Roger's Dresses. I can't wait to design a logo.

Pepper Morgan Pressley: Oh brother.

Roger Morgan: Two day free delivery. I can't compete with that at Gliebers Dresses.

Meredith Thompson: It's your job to compete with Amazon!!

Roger Morgan: If you can't beat 'em, join 'em!

Pepper Morgan Pressley: I liked the idea until it became Roger's Dresses. Why do I have a feeling this isn't going to end well?

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