I thought you might like to read this ... lifetime value is very important (as you already know). Click here to read more about Lyft uses LTV.
June 27, 2019
June 26, 2019
If you are Starbucks, sure, your darn addictive product is more than enough to foster loyalty. In fact, when your customer purchases six or more times a year it isn't difficult to improve customer loyalty.
Annual purchase frequency is a function of at least four things.
- Whether your product is addictive (Starbucks).
- The breadth of your assortment (Amazon).
- Whether your product is needed (i.e. food).
- The seasonality of the products you sell.
Most of my readers aren't Starbucks, aren't Amazon, and aren't McDonald's.
Our products aren't addictive.
Our products aren't terribly broad - we aren't Walmart or Nordstrom or Target or Best Buy. We serve a niche.
Our products aren't needed. We need weekly grocery trips to Safeway. We don't need an O&H Kringle on a weekly basis.
For some of us, our products are gift related, limiting their sales to November/December. It's hard to foster loyalty when the customer has minimal reason to buy in ten of twelve months.
The result is this ... our product assortment dictates customer loyalty ... not the other way around. If you sell something that a customer only "wants" 1.5 times per year, you can flail away all you like with loyalty efforts and you'll be successful and the customer will buy 1.63 times per year. Nothing changed. You actually did a great job, and nothing changed.
You're better off spending the money finding a new customer.
Your business model, the products you sell, that determines if customers are loyal. Offering triple points on items that customers don't need frequently is an altogether different proposition.
June 24, 2019
On Twitter, there's a lot of experts who "know" how to fix retail. Experiences!! Omnichannel! Digital Transformation.
All could be used to improve sales. But does it matter?
In my projects, it's common to observe three types of traffic.
- Think of a customer who purchased twelve times previously, and loves your brand. This customer visits your website all the time, and is more than happy to drive to your store without the need for advertising. This customer is the very definition of the "organic percentage". If you do your job well, you have a significant minority of traffic that is earned (i.e. you earned this traffic by running your business well) that generates a significant majority of sales.
- Social media falls into the Earned category - your creative team (Instagram in particular) creates imagery and "content" so powerful that your fans share the word for you ... you "earn" this traffic, and it costs you nothing.
- This is what you read about.
- Pay Google.
- Pay Facebook.
- Pay TV for ads.
- Pay for Retargeting.
- Pay Affiliates.
- You give somebody money, they deliver customers. Hopefully they're the customers you need, customers with long-term value that eventually fall into the Earned category. Hopefully.
- Three types of shared traffic come to mind.
- First = Paying for Real Estate in a Mall. This form of Shared Traffic is dying.
- Second = Paying Co-Ops (catalogers) for New Customers. This form of Shared Traffic is dying.
- Third = Amazon. This form of Shared Traffic is growing.
The problem with modern business is that too little traffic is Earned, too much traffic is Purchased, and too much Shared traffic is dying.
Think about it this way. Pretend you are a mall-based retailer.
- Earned Traffic = 40% of Sales.
- Purchased Traffic = 30% of Sales.
- Shared Traffic = 30% of Sales.
- Next year, you forecast Earned Traffic to be flat, Purchased Traffic to be flat, and Shared Traffic to be down 20%.
- Next Year Sales = 0.40*1.00 + 0.30*1.00 + 0.30*0.80 = -6%.
Here's an example. Say you grow Purchased Traffic by 10% by working hard to improve Purchased Traffic ... but your mall-based competitors fail miserably (as they frequently are) causing Shared Traffic to drop by 20%.
- Next Year Sales = 0.40*1.00 + 0.30*1.10 + 0.30*0.80 = -3%.
You do everything right, but because you are dependent upon Shared Traffic, your sales decline.
You can't solve the Retail problem until you solve the Shared Traffic problem.
Hint: You are not going to solve the Shared Traffic problem ... that problem will continue to get worse.
Therefore, you have to solve your Earned Traffic issue and/or you have to profitably solve the Purchased Traffic situation. That's what you have to do if you have stores ... stores can no longer be dependent upon Shared Traffic.
June 23, 2019
Let's look at a quote from the 10-K at Restoration Hardware (you read 10-K statements from publicly traded companies ... right ... right?).
In case that is TL:DR for you, here's what I want you to take from this:
- Our Source Books are one of our primary branding and advertising vehicles.
- No mention of profitability. None. Interesting.
- They have a "RH Center of Innovation & Product Leadership" which most of the companies I work with call "2nd floor" or "Creative".
- They mail the Source Book to "addresses provided to us by third parties" ... a fancy way of saying "we rent names from co-ops".
The future of catalog marketing is a shift away from the classic business model (which began to die the minute Google began to "scale" nearly twenty years ago) into an advertising / branding vehicle. Something very different than a vehicle that maximizes sales per square inch. I can barely believe I just uttered this sentence, since it goes against everything I've historically believed ... but here we are, and we may as well acknowledge it, right?
June 19, 2019
Here are two posts that (if you are a true marketer with a passion for product) you should read.
One of my favorite Twitter quotes (I wrote it, so of course I like it) is this:
- Discounts and Promotions are taxes placed upon brands for being unremarkable.
The more unique something is, the more you can charge for it.
It's common in project work in the past two years to see companies raise prices (significantly) on new merchandise ... a comparable item that used to sell for $24.99 is reintroduced as a new item (with a new button or zipper) and is sold for $29.99. This yields a nasty dynamic ... customers won't buy the $29.99 item, so the brand deepens the discount (goes from 30% off to 40% off) ... but does so across the board, thereby lowering the price on the item that the customer likes ($24.99) from an effective $17.49 (30% off) to $14.99 (40% off).
See what happened there?
The newer item at a higher price point doesn't sell, causing the lousy marketer to discount EVERYTHING which lowers the effective price of the good-selling item thereby mucking-up the pricing integrity of all items.
I know, I know, you can't create "The Pan Am Experience" for your brand ... you sell widgets "in a highly competitive marketplace".
But you can do SOMETHING, right? You can have elite merchandise at a high price point that nobody else bothers to sell. Right? And you can make those handful of items special, from a marketing standpoint. Right?
June 17, 2019
A few weeks ago, a reader said this:
- "Instead of talking about the gloom and doom of the death spiral, why not be optimistic and make the discussion fun ... like in the way a Treasure Hunt is fun??"
Think about the topic this way. The "Death Spiral" generally happens when Management reacts to changes in business performance. In other words, the "Death Spiral" is frequently caused by Management.
In the same fashion, a "Treasure Hunt" can be created by Marketing as a response ... a credible response.
Think about the elements of a Treasure Hunt:
- An entire world must be created - one that the participant wants to be part of.
- There is a problem to be solved - and the clues make solving the problem fun.
- There is competition. The participant is battling somebody else for a treasure.
- There is a TREASURE at the end, and most participants will not share in the treasure.
This brings us back to Marketing. We don't market to prospects as if we even care, do we?
Do we create an entire world around our "brand"? Almost never. Think about it this way ... what is the world that Macy's creates? Creating a world is HARD WORK, and it doesn't always work, does it? The easy half of creating a world is called "brand marketing". It's easy to create imagery that generates feelings, and it's easy to link that to customer service and pricing etc. It's HARD WORK to create an actual world that the customer wants to be part of.
Problem Solving - what is the problem the customer is trying to solve? Do you give the customer clues to solve their own problem(s)? Think about email marketing ... we tell the customer that we have a "Friends and Family" event and that just about every living person on the planet gets 40% off as a result. That's not much of a treasure. Think about how you could use email marketing to solve problems that lead to a treasure.
Competition - this is what the Fast Fashion folks figured out ... they sold limited quantities of merchandise, creating a "competition" that resulted in urgency. What sense of urgency exists when you can buy the same pair of Dockers in any channel at any time? There's no urgency, is there? None! The marketer must create urgency.
Treasure!! Apple understands the treasure (or at least they used to understand it). Think about customers waiting to buy a new iPhone. There needs to be a Treasure at the end of the Hunt, and the Treasure should be something that conveys status. What do you sell that represents the Treasure at the end of the hunt?
This brings us back to the concept of a seamless / frictionless omichannel shopping experience. Boring!!! It's comparatively easy to sell the same products in all channels at the same price and to integrate everything together ... it just takes software and money. In the Treasure Hunt mindset, the omnichannel solution is a small part of the treasure. If you want a customer to earn a treasure, you might require the customer to buy in an omnichannel manner (i.e. buy online pickup in store).
This transitions us to the concept of a Treasure Hunt within the structure of a Loyalty Program. Instead of giving the customer points when the customer buys something, why not create a Treasure Hunt???? Why not given the customer 10 points when the customer buys in store and 2 points when the customer buys online? That'll push a customer into your store, I can guarantee you that much!! Make your points structure flexible so that if you are having a hard time selling Widgets then you give more points for Widgets purchases. Give five times as many points to the customer when the customer buys new items ... thereby growing new merchandise sales (which means you'll sell more existing merchandise in the future). Use email to give clues that allows the customer to find the items that earn the most loyalty (treasure) points. DO SOMETHING!!!!!! Use email marketing to offer quadruple point events on specific items that are important to the Treasure Hunt. And then tell a compelling story around the items that support the Treasure Hunt.
Give the customer something the customer will actually treasure. If the customer earns 60 Treasure points the customer gets an actual ... wait for it ... wait for it ... an actual TREASURE!!! Something nobody else gets. Put your product people / merchants to work to come up with something amazing that only those who win the treasure hunt earn.
What am I trying to say here?
I'm trying to say that the Marketer pulls a company out of the Death Spiral. Yes, merchandise is most important ... but the Marketer has a key responsibility to generate interest ... the marketer creates a Treasure Hunt that causes the customer to want to buy something.
Go do that, ok?
June 16, 2019
Here you go. Doesn't take any effort whatsoever.
P.S.: When I share stuff like this at conferences, there are groans and eye rolls and heads shaking "nooooooo". That's ok, that's the right of the conference attendee. But as a speaker, I marvel at the ability of an audience to reject ideas and then grumble that "business is bad".
P.P.S.: It's Nordstrom, 2001. My boss, the President of the Online Division, blows his top (in his way) because I correlate business struggles with S&P 500 declines. His quote lives with me:
- "It's not your job to correlate business struggles with the S&P 500. It's your job to fix business problems. Do your job."
So before you just reject the concept above, think about the quote, and then go fix a few problems, ok??!!
June 12, 2019
I'll be doing a virtual event for Catalog University on June 27 at Noon EDT ... titled WHAT CATALOG MARKETING WILL LOOK LIKE IN 2025.
Yes, we'll talk about the future ... about Bifurcation ... and about how we'll all need to employ the Great Eight if we want to survive.
How much will this cost you? NOTHING!!!
Click here to register - it's not like you have anything better to do a week before July 4 and you'll learn a ton in the process: https://www.cataloguniversity.com/pubtalk/the-great-eight-what-catalog-marketing-will-look-like-in-2025/
June 10, 2019
The future of catalog marketing skews in two directions.
- 30+ contacts to a small fraction of long-term catalog-centric customers.
- A handful of 22ish page contacts to non-catalog customers in an effort to generate awareness.
When the latter is a goal (and yes, it's going to be a goal in the future), you cannot afford to mess around with merchandise that doesn't sell well.
You will stuff that 22 page catalog with the absolute best merchandise you have. It's the only way you are going to generate positive return on investment.
This is coming ... we're not going to stop it, it's the future. Best be prepared now ... test the living daylights out of formats and ideas so that you are ready to embrace the future.
June 09, 2019
Yup, that's it. That's what Williams Sonoma published a week ago, delivered on a Saturday.
Bifurcation of traditional catalog marketing is coming to all of ya. Yes, all of ya.
For non-catalogers, 16-22 pages will represent a way to create awareness. For non-catalogers, the format will not generate a ton of sales, and the format will barely be profitable. But it will be a better form of awareness than display ads.
For catalogers, it's time to buckle up.
At the recent Datamann Conference, I shared the concept of "Bifurcation" with the audience. Your customer files are splitting in half. You spent 15 years trying to hold the customer file together (#multichannel #omnichannel), and the customer chose otherwise.
- A minority of the file, age 60+, are running head-first into retirement, and they're not about to don VR headsets to watch a simulated in-store display in 3D. They're comfortable doing what they've always done. They're going to buy from catalogs until they can't anymore. You can mail these customers 30-50 times per year.
- A vast majority of the file, age 15-59, do not see you as a catalog brand and have minimal or no interest whatsoever in print. Period. They're buying merchandise from your brand. As a consequence, you'll greatly reduce your contacts to this audience until, one day, you simply won't ever mail them again (if you continue to have 80-120 page contacts in your strategy).
So where does the 22 page contact come into play? How does this represent the future?
- The 22 page contact acts as contact #31 or contact #43 to the best pure catalog customer.
- The 22 page contact is a bridge for the 15-59 year old customer who couldn't care less about print ... bridging the past (catalog marketing) to the future (catalog as an awareness tool).
June 05, 2019
There's probably a thousand different ways to escape the death spiral.
If you want your core brand to succeed, you'll need to focus on Audience, Awareness, and Acquisition ... no doubt about it. Your Awareness Programs have to be at low-cost / no-cost. You'll have to reach different Audiences (or if you are a smaller brand you'll have to find your Audience).
I know, I know, you don't want to hear that.
- "That won't work at our brand. We're unique. We're special. Our heritage is our advantage, and we leverage an omnichannel shopping model that our customers crave."
I get this feedback often.
There are other options.
- Buy a small startup and then choose to not meddle in their business.
- Create a separate brand. J. Crew is in a death spiral. Madewell is not. Good thing Management at J. Crew created a separate brand.
- Create an upscale channel or a low-price channel. A third of what Nordstrom sells is via their off-price channel. A full THIRD. Let that one sink in for a moment. It was probably closer to 10% when I worked there fifteen years ago.
- Become a Supplier/Vendor: In other words, get your products sold in Target or Walmart or another large brand. I know you don't want to do this, but you already have a presence on Amazon, right? So you're already doing this, right?
I could list a thousand ideas, but you get the picture.
How do you diagnose if your business is in a death spiral? See how many of the bullet points below fit your situation:
- Customer Acquisition counts are in decline on comparable spend levels.
- You have a channel where > 50% of new customers are acquired, and that channel is dying (i.e. retail/malls or catalogs/co-ops).
- Your Management Team reacts by spending less on marketing / customer acquisition and then spends more to cause customers to become more loyal.
- Your average %-off discount to your loyal customer base is increasing over time.
- Your primary sales channel is in structural decline (retail = malls, catalogs = well, catalogs).
- Your best customers prefer existing items that have been sold for several years and do not diversify into new products offered by your merchandising team.
- You create new channels (i.e. BOPIS in retail) and new customers largely ignore the new channel while existing customers switch to the new channel without increasing spend.
- You invest heavily in Loyalty Programs but have few customers with > 60% chance of purchasing again in the next year.
- Management responds to customer acquisition challenges and de-leveraged ad-to-sales ratios by cutting marketing spend further ... accelerating the death spiral.
- You pay for more than 85% of your new customers.
- When you have an idea somebody with history at your company says "we tried that in 2009 and it didn't work."
- Merchandise productivity is in decline.
- Merchandise productivity is improving but customer acquisition counts are falling at a faster rate, causing sales declines.
How do you dig yourself out?
- Create low-cost / no-cost Awareness Programs.
- Diversify your Customer Acquisition Programs beyond malls/retail, catalogs/co-ops, Google, and Facebook.
- Develop new brands and do not market those brands to your existing customer base.
- Buy small startups and let them grow without interference.
- Buy a dying company and integrate their customers into your brand.
- Develop luxury channels or off-price channels.
- Become a vendor for major brands.
- Maintain marketing spend.
- Shift discounts from blanket 40% off promos that are run 5x a week to limited promotions on individual items, and couple this with limited inventory buys that exempt your brand from non-stop clearance activity.
- Shift focus from loyalty to awareness and customer acquisition. If loyalty was the answer there would be four thousand case studies of brands who saved themselves while dying by focusing on the most loyal customers.
Next week I'll have a potpourri of topics while I'm in Europe ... the week after, I'm going to flip-the-script ... instead of focusing on a Death Spiral, I'll focus on a Treasure Hunt ... in other words, we'll view the problem from a positive standpoint, ok?
June 03, 2019
In retail, the "services" channel is viewed as a secret weapon. Buy online, pickup in store ... buy in store and ship to store ... buy in a store and ship home ... visit a store with no merchandise ... curbside pickup ... these concepts are viewed as "solutions".
They are solutions.
They are not solutions to the death spiral.
Getting a customer to buy online and pickup in a store is hard ... you are asking the customer to execute multiple steps ... in other words, you are creating a "friction-filled" experience.
The more friction you add to a transaction, the more you push existing customers toward that style of transaction. In other words, you are trying to squeeze more money out of existing customers. Squeezing more money out of existing customers traps you deeper in the death spiral, because you don't solve the biggest problem ... that being "how are we going to find new customers??"
If you don't believe me (and you work in retail), divide your business into three channels.
- Pure E-Commerce.
- Pure In-Store Purchases.
- Service-Related Purchases (like Buy Online, Pickup In A Store).
Once you have the three channels, compare the following.
- New customer counts by channel.
- Source of existing customers by channel ... in other words, are your Service-Related buyers prior in-store buyers??
- Future value based on last year's channel preference (i.e. does the Service-Related customer spend more in-store next year after a Service-Related purchase, after controlling for historical spend - and spend more everywhere??).
- Future channel preference - does the Service-Related purchaser ever go back into the store and buy at the same rates as prior years?
If you take a customer who would have bought 3x a year in a store and turn the customer into a customer buying 2x a year via Service-Related purchases, you've just accelerated the death spiral.
If you take a customer who used to buy in a store and turn the customer into a Service-Related customer, you are in the process of turning your store into a distribution center ... and you have a lot of long-term thinking to do to evaluate the long-term consequences of your decision.
June 02, 2019
Ok, it's become terribly hard to acquire new customers. You've cut back on marketing, making it even harder to acquire new customers. You instead focus on your "best customers", trying to squeeze every last penny out of their wallet in an effort to stave off the death spiral.
When you cater to your "best customers", you cater to "the past". Yes. Your best customers have years (sometimes a decade or more) of experience with your brand. They have established tastes. They like buying Widgets ... and if you introduce Bidgets they get frustrated. They don't like Bidgets, they like Widgets.
Your death spiral accelerates.
When your best customers reject Bidgets because they love Widgets, you force your merchandising team to focus on Widgets ... it's a "data-driven" approach ... your data says your customer loves Widgets and hates Bidgets and therefore you need to expand your Widgets line. And because you are focusing your limited marketing resources on best customers, you want to please best customers, therefore you feature more Widgets!!
Why is this a problem?
Think about this from a DirecTV standpoint. They need new subscribers, and they need younger subscribers. However, as they lose subscribers they need to make budgeted sales numbers ... so they squeeze out more money from existing subscribers by pushing the same products to the same customers they've always had. Meanwhile the skinny bundles (think YouTube TV) that younger customers want (or can afford) make no sense within the DirecTV framework (and yes, I realize they have an online bundle, and how's that bundle working for them?). So the merchandise assortment, via a "data-driven" approach, shows that paying $140 a month is "right" ... and that drives away prospects making it harder and harder for DirecTV to survive long-term.
When you are stuck in the death spiral, you make marketing investment decisions that speed up the death spiral. Those decisions result in somebody deciding to squeeze more out of existing customers. When you squeeze more out of existing customers you paralyze your merchandising team into focusing on what your long-term customers love instead of what you need to do to get out of the death spiral.
And on it goes.
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