June 05, 2019

Solving The Problem

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?

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