June 24, 2019

Three Types of Traffic

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?

Maybe.

In my projects, it's common to observe three types of traffic.
  • Earned.
  • Purchased.
  • Shared.
Earned:
  • 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.
Purchased:
  • 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.
Shared:
  • 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%.
If you are a mall-based retailer, this is the problem you cannot solve with any of the trending topics out on Twitter (Omnichannel, Experiences, Entertainment, Digital). 

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.

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