June 02, 2019

Merchandising In The Death Spiral

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.

Oh boy.

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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