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Rebuy Refresher

There's a clear distinction between Transactional Brands and Relationship Brands. You can see it via annual repurchase rates:

• Annual Repurchase Rates < 40% align with Transactional Brands.

Look at it this way. Let's say that you retain 28% of last year's buyer file. Let's say that you had 100 buyers last year:

• 100 * 0.28 = 28 retained buyers.

How many new/reactivated buyers do you need to keep the buyer file level?

• 100 - (100 * 0.28) = 72 new/reactivated buyers.

You're clearly a Transactional Brand when this happens. You are looking for customers who have a need at a point in time, and you're looking to capture that order RIGHT NOW, aren't you?

Go calculate your annual repurchase rate among twelve-month buyers. What is the rate? Is it under 40%? Yes? It probably is. And that means that, in all likelihood, you are a Transactional Brand. That's not good/bad ... but the reality of the situation dictates the marketing tactics that are likely to work.

There's a reason that the majority of customer loyalty efforts employed by "brands" fail or lose money or do not generate sales gains ... they're applied to Transactional Brands.

Make sense?

Broasted Chicken

In a Transactional Brand, you'd sell fried chicken. You'd offer the chicken at a low cost (your deep fryer is essentially free), you'd advertise digitally, and you'd seek out customers who demand to eat fried chicken RIGHT NOW ... demanding that the customer buy IMMEDIATELY. You're there to generate a transaction.

In a Relationship Brand you spend $5,000 to purchase a Broaster ... a combination Broiler / Roaster that is licensed by the Broaster brand. You'd buy the secret coating that goes on the chicken. The chicken is "made to order", so you're going to disappoint customers with long wait times if many customers order broasted chicken at the same time. You realize that only a fraction of customers care about broasted chicken, and you realize that these customers will come back repeatedly because you possess a broaster and the competition does not possess a broaster.

The Transactional Brand sell the same junk everybody sells, at a low cost. The Transactional Brand uses tricks and gimmicks to get the customer to buy RIGHT NOW.

The Relationship Brand sells something unique, often at a moderate / high cost. The Relationship Brand uses merchandise to get the customer to come back TOMORROW.

Do you see the difference I'm talking about here?

It's really hard to increase customer loyalty if your business is calibrated around Transactions.

How Do I Know I Operate A Transactional Brand?

How do I know I operate a transactional brand?

• Annual Repurchase Rates are low, under 30%.
• I grumble when third parties charge me more for the exact same service.
• My new customers come from Facebook.
• My new customers come from Instagram.
• My new customers come from Pinterest.
• For catalogers, new customers come from Catalog Co-Ops.
• My new customers come from Google.
• I transact on Amazon and Amazon gets a generous cut of the action.
• I hound customers all across the internet via retargeting programs, stalking them, begging them to cash in an abandoned shopping cart.
• I have a robust shopping cart abandonment program.
• I offer bigger discounts for customers who abandon carts than for customers who complete an initial transaction.
• I offer discounts, period.
• I offer free shipping.

And that's just a sampling of likely outcomes that determine if you operate a Transactional Brand.

A Transactional Brand is at the mercy of strategic algorithms.

A Relationship Brand is at the mercy of strategic marketing/merchandising decisions.

The Transactional Brand

Sometimes business changes, and when it changes, nobody notices.

Tell me how you'd use Google Analytics (without writing any supplemental code) to determine if your customer base is more loyal or less loyal? More specifically, tell me how you'd use Google Analytics to determine if you have a customer loyalty program.

Here's a huge change I've observed over the past decade.

• 2009 = It was common for a B2C brand to retain 37% of last year's customer base.
• 2019 = It is common for a B2C brand to retain 20% of last year's customer base.

For all of the wonky nonsense you read about how to retain customers, none of the wonky nonsense is working anymore.

Oh sure, I see brands that retain 45% of last year's customer base. It happens. But it used to happen ALL THE TIME ... and now it RARELY HAPPENS.

Don't tell me that this is because of Amazon. Amazon isn't big enough to make a difference. Walmart is big enough to make a difference, and Walmart was dominant when retention rates were 37%. So this isn't an Amazon issue.

This is an issue of how you "transact" with channels.

What do I mean by "transact"??

Marketing shifted. Ten years ago we were in the final days of "relationship branding". The goal was to build a relationship with the customer. The goal was, of course, expensive ... darn expensive. 

Since then, digital analytics have stripped anything expensive from the profit-and-loss statement. Everything today is a transaction. You look to convert the customer, you try to extract every penny of profit from the customer, and then you move on to find the next customer looking to buy something RIGHT NOW.

Customer Relationship / Loyalty discussions are just that ... they're discussions. The discussions don't reflect reality.

Since the economic crash, now more than a decade ago, we shifted from relationships to transactions. Think I'm wrong? Look at the desperation in a typical email marketing message. Everybody is trying to get you to buy something RIGHT NOW and they'll give you free shipping and 40% off and loyalty points and additional 20% off on top of the 40% off to get you to buy RIGHT NOW.

It's all about Transactional Commerce now. This is one of the reasons mall-based retail is dead. Mall-based retail requires a relationship ... nobody gets in a car and drives 15 minutes to visit a mall unless a relationship exists. Shift the relationship to transactions, and the mall serves no purpose.

Transactional Brands aren't good, and they aren't bad. They're just different. The issue is if you think you are managing a Relationship Brand and you focus your efforts on Google / Facebook / Instagram / Digital, you are sub-optimally managing your brand. And here's a strong hint ... the vast majority of my client base thinks they're a Relationship Brand but their marketing team focuses on being a Transactional Brand. Align the business properly, and the p&l will work just fine.

The vast majority of folks I speak with or work for are managing Transactional Brands when they think they're managing Relationship Brands. Please align your goals with your marketing efforts, and then results might just improve, ok?

Creative

On Twitter you find all sorts of odd and untested ideas.

One follower told me that he outsources all of his creative imagery to his customers ... "we simply can't hire enough staff to do what we want to do, and to be honest, our customers know what they want more than we know what they want, so we let them create the imagery we use."

A couple of things.

1. You can afford to hire professionals, you choose not to hire professionals.
2. Outsourcing creative to customers isn't right/wrong ... it's just a choice. One of many choices you make.

Your in-house team probably won't publish the image of the corgi in this post ... that's something a customer does. As a result, your brand is taken in different direction than it would head under the Leadership of a Creative Director.

This is what creative looks like under the Leadership of a Creative Director.

I worked at Nordstrom when the Creative Director was sent to pasture to "spend more time with family and friends". It's a risky job, and if you lead your company in the wrong direction you lose your job.

Neither approach is right/wrong.

Based on my project work, I'm not convinced enough thought is being given to the importance of Creative in a user-generated world.

What Is The Total Package, Anyway??

Tom from Ann Arbor has a question:

Dear Kevin:  Long-time reader, first-time questioner.  I reviewed your product offerings. I don't understand the difference between a Pricing project, a Total Package project, and a Contact Strategy project. Can you describe the differences for me. Thanks, Tom.

Tom, here's your long-distance dedication. No, wait, that's American Top 40 from the 70s.

Anyway, there are several different projects I typically perform for nearly 250 clients since founding MineThatData in 2007. 

We have the Elite Program, which just wrapped up an October run. For just $1,800 (and then $1,000 thereafter, three runs per year) you get a sampling of Total Package and Pricing tables, and a writeup of how your business is performing. It's the perfect entry-level project!

Next is Hillstrom's Pricing. For $8,500 through 12/31 ($12,000 therearfter) you get a full study of how your customers respond to different price points. You'll learn if you have a "pricing problem" or not. I created Hillstrom's Pricing because so many clients were increasing prices on new items, and then discovered they had a "new item" problem. Noooo ... they had a pricing problem. You'll also get a series of channel-based, product-based, and price-point-based targeting variables that you can program into your omnichannel database.

Hillstrom's Total Package is a combination of former products. You get the following:

1. Hillstrom's Pricing.
2. Hillstrom's Merchandise Forensics.
3. Hillstrom's Fix it.

You ask for a Total Package project when you are not sure why your business is not meeting expectations. Most often, I discover the following:

• A customer acquisition problem (i.e. a marketing problem).
• A merchandise problem (i.e. merchandising issues related to new / existing items).
• A pricing problem (oftentimes rooted in discontinuing inexpensive items that loyal customers crave).

You'll learn why your business is struggling, and you'll have a road map for improving performance.

Finally, we have Hillstrom's Contact Strategy ... a product specifically for catalog marketers. In this project, I determine (for every customer on your customer file) the number of annual catalogs that optimizes profitability. Based on the now famous "organic percentage" ... the fraction of annual volume that happens independent of catalog marketing, I am able to generate a hundred million dollar catalog brand a million dollars of incremental annual profit ... oftentimes more!

You can click here to learn about the cost of each project, and learn more about the file formats required to complete each project.

You Don't Have To Like It

Last week I talked briefly about printer profits (click here).

You liked that, based on measurements like "engagement".

Of course "engagement" doesn't pay the bills.

When I talk about Merchandise Forensics or Pricing Issues, "engagement" data is lousy. At the same time, people choose to hire me.

You don't have to like the focus on merchandise or on pricing. You might hate it. You might prefer engaging content that allows you to debate "strategy".

What matters most, of course, is that you take concepts you read about here and apply them to your business in a profitable manner. You can search for keys to improving conversion rate, but if pricing is not right and/or merchandising strategy is off, conversion rate is going to be below your expectations. Don't look for magic. Look to what you sell and how you sell it. Teach your co-workers the dynamics that cause customers to respond. Go make a difference, ok?!!

Perception

Free shipping sends one message. You're willing to stand behind your prices, but you are willing to absorb losses from an operational standpoint.

25% off sends a different message. You suggest to the customer that the reason the customer isn't buying isn't your merchandise, but instead that your prices are simply too high.

Everyday low prices teach the customer that you can be trusted.

There isn't a right/wrong way to do any of this. JCP and Macy's have been discounting forever, it's part of their game and the customer still shopping there understand the game. But understand ... you are who you say you are. 

And what you prioritize via email & home/landing pages & print determines who you are. You can trim the number of low-cost items you sell and still feature low-cost items. There are many ways to make customers happy while optimizing profitability.

If You Want To See What Is Wrong With E-Commerce ...

... then please click here.

Given The Choice ...

... between selling a winning item at $14.99 or selling a winning item at $44.99, pick the winning item at $14.99.

Why?

On average, units = customers. A winning item at $14.99 sells 3x as many units (on average) as a winning item at $44.99. Therefore, the lower-priced winning item attracts more customers, who tend to deliver long-term value.

At least think about the concept, ok?

Look For Balance

It's common to see this in my project work.

Existing Items:

• 2019 = $24 average price.
• 2018 = $25 average price.
• 2017 = $26 average price.
• 2016 = $28 average price.
• 2015 = $27 average price.

New Items:

• 2019 = $33 average price.
• 2018 = $31 average price.
• 2017 = $30 average price.
• 2016 = $29 average price.
• 2015 = $28 average price.

This is a classic case of "divergence" ... the items the merchandising team carries over are increasingly cheaper over time ... while the new items introduced are more expensive over time.

No balance.

Just divergence.

Divergence is bad because of how we typically deal with the issue. It's common for customers to not respond to new items that have diverged from the prices of existing items carried over from last year. This causes the merchandising team to freak out ... the inventory managers in particular. They put pressure on the marketing team (or the CFO puts pressure on the marketing team), and in kind we see emails for 40% off of everything ... yes, everything. This causes existing items at $24 to be sold at a real price of about $14, even though those items were selling acceptably. Price deflation kills the brand.

So please, look for balance in pricing between new items and existing items that are being carried over.

We Need A Lot More New Items

Here's our forecast case from yesterday.

If I substitute in 2,250 new items per year instead of 1,577, and if I assume that the rate of these items becoming Winners / Contenders / Others remains constant (which is a risky assumption), then this price point band generates increased demand in the future.

This is the style of analysis that you want to apply at a category level, given that the relationships by category are likely different.

Click here for more details regarding your own Pricing Project.

Printing Industry Profit

In case you missed this chart from the newsletter that Paul Stuit sends ... take a peek:

The red line is inflation-adjusted shipments ... and if you think there is a catalog revival, the overall data suggests otherwise. Print is in dire shape at a macro level, down 50% over nearly two decades.

The blue line is profit. If profit is flat and inflation-adjusted shipments are down, that means your friendly printer "might" be squeezing you. Only you can know for sure ... ask 'em, right?

You can see that the industry began to die in 2001, collapsed in 2008, and has been trending into oblivion ever since, save for a modest bump in recent months.

I'm sure printers will tell you that I'm interpreting the data wrong, and I'm confident that the industry will chime in with a "catalogs are making a revival" theme, pointing to one e-commerce brand that send a couple of catalogs without any discipline as proof that all is well.

Take care of your e-commerce business.

Take care of your merchandising strategy.

Take care of your pricing strategy.

Complement all of it with print if it is profitable to do so and if your customer is age 62+.

But do not listen to the pundits ... listen to your customers, ok?


P.S.:  There's plenty of commentary on this print-centric website about the death of the PRINT conference (click here) ... the world changed 18 years ago and the changes are catching up with the industry.

Forecasting by Price Point

The best business professionals can forecast ... they can predict what will happen in the future based on what happened in the past.

If you have a price point bad that is struggling to grow, you can forecast the band to understand where it is headed over the next few years. Here's an example ... for items under ten dollars.

This price point band, based on distribution of Winners / Contenders / Others, is forecast to generate less annual sales over the next three years.

What needs to happen to grow this price point band? We'll learn more tomorrow, ok?

All Price Points Yield Different Outcomes

Here are the results of a regression model ... I sum last year demand by price point, and the regression model predicts how much the customer will spend next year (in total) with the brand. The "p" variables represent different price points that customers spent money in last year ... p020 = items $10.00 to $19.99 etc.

We're looking down the "B" column ... those are the coefficients. If a customer spent $100 on items between $0.01 to $9.99, we multiply $100 by the coefficient for "p010" ... by 0.461. 100*0.461 = $46.10.

Now look at P100 ... these are items between $75 and $99.99. The coefficient is just 0.247 ... if a customer spent $100 on items between $75 and $99.99 (which isn't possible of course, but we're here to create an example), then the customer will spend 100*0.247 = $24.70 in the next year.

Which customer would you prefer?

• The customer who will spend $46.10 next year.
• The customer who will spend $24.70 next year.

It's not a difficult choice, is it?

Every one of you offers items at different price points. Some of those price points yield high-value customers. Some don't. You'd probably want to know which ones lead to low-value customers before offering next year's assortment, correct? (click here for more details).

Customer Life Cycle Matters

This is one of my favorite tables in the "Hillstrom's Pricing" booklet.

In the table, I look at share of annual demand that is attributed to various attributes. 

Look at the most loyal customers ... those with 26+ life-to-date orders. They like items $0.01 to $9.99 more than any other segment ... and this is a pricing segment that the brand being studied is vacating. In other words, the most loyal customers are being starved of the merchandise they like.

Look at the "Above Average Item Price" and "Below Average Item Price" rows. First-time buyers spend 76% of their volume on items priced at/above the average price for a specific item. However, the most loyal customers spend 64% of their volume on items priced at/above the average price for a specific item. In other words, the most loyal customers either know how to look for bargains, or are being given bargains. Either way, this probably isn't a good dynamic.

Look at the "% New Merchandise" row. First-time buyers spend 35% of their volume on new items (new in the past year). The most loyal buyers spend 51% of their volume on new items. In other words, newbies are attracted to stuff that has always worked, while loyal customers want a fresher assortment.

In a pricing project, I can easily set up new/existing preference variables ... so that you can target customers appropriately. When a loyal customer visits the website, show the loyal customer something fresh and interesting (and likely, something at a low cost).

Hillstrom's Pricing.

• $8,500 through 12/31/2019, $12,000 thereafter.
• Included FREE when you purchase a TOTAL PACKAGE PROJECT.

Vacating Price Point Bands

This is one of the most interesting findings of the past 12-18 months.

In my project work, it is common to see companies vacating low price point bands, in an effort to increase gross margins (and, theoretically, become more profitable).

Look at annual spend per customer ... it was $108.97 back in 2016, it is $96.80 today. The customer is spending $12 less per year ... not good!

Now let's look at where the shortfall comes from.

• Items $0.01 to $9.99 = down $6.60.
• Items $10.00 to $19.99 = down $2.00.
• Items $20.00 to $49.99 (combined) = down $3.70.

The company is clearly vacating items under $50, and is paying the price (from a top-line standpoint).

#OhBoy

But not all is lost ... if the brand knows that some customers prefer the lowest pricing bands, it's easy enough to "show" those customers what is still being sold in low price point bands. Just personalize email, print, and home/landing pages for those specific customers with specific pricing preferences.

This analysis is one of many included in "Hillstrom's Pricing".

• Project Cost through 12/31/2019 = $8,500.
• Project Cost on/after 1/1/2020 = $12,000.
• Pricing Project is added FREE when you purchase a TOTAL PACKAGE PROJECT.
• Click here for additional details.

Online Personalization

Here's a common problem. Your brand needs to increase prices on new items in an effort to increase gross margins. However, your customers are conditioned to buy low-price items. So when you offer marginally more expensive new items, customers rebuke your effort.

There are workarounds.

In a typical pricing project, I create what I call "targeting variables". The variables are used to help the marketer side-step key issues. Here are the most common variables I generate.

• Primary Merchandise Category Preference.
• Secondary Merchandise Category Preference.
• Primary Marketing Channel Preference.
• Secondary Marketing Channel Preference.
• Preferred Pricing Tier (Low Price, Medium Price, High Price).
• Does the Customer Typically Purchase Items Below the Average Historical Price Point for that Item?
• Customer Quality (A, B, C, D, F, New Last Year, Lapsed).

Here's a good way to sidestep pricing issues. You have a visitor to your website. The visitor is a high quality visitor ("A"), the customer prefers Mens Socks first and Mens Pants second. The customer typically orders Online via Search, and Online via Catalogs second. The customer prefers Low Price pricing tiers. The customer, however, likes to buy items at or Above the average historical price point for the item (i.e. the customer doesn't wait for discounts on the item and doesn't buy via liquidation/clearance). Armed with this information, you can "show" the customer items that are inexpensive within Mens Socks and Mens Pants, items that are being sold at full price.

Just personalize the experience for that individual customer.

Right?

That's a decent outcome ... one you can expect to generate when you buy your "Hillstrom's Pricing" project.

• Cost Through 12/31/2019 = $8,500.
• Cost On or After 1/1/2020 = $12,000.
• A Pricing Project is included FREE when you purchase Hillstrom's Total Package.

Honestly, the project cost is virtually free. What would stop you from getting started??

Targeting Variables

It's one thing to point out that you have a pricing problem. It's another thing for marketers to leverage the information and generate positive ROI from the data.

In pricing projects I develop what I call "targeting variables". The variables are stored in your database, and are available for use at any time.

• Low / Medium / High Price Point Preference.
• Purchases Items Above / Below Normal Price Point For The Individual Item.
• Buys Winners or Contending Items.
• Primary Merchandise Category Preference and Secondary Merchandise Category Preference.
• Primary Marketing Channel Preference and Secondary Merchandise Category Preference.

Now, let's say that you are L.L. Bean and your merchants want to clear out a Sweater Fleece Coat. As a marketer, how can you help?

• Identify customers with a primary or secondary marketing channel = email marketing.
• Identify customers who purchase from medium / high price points.
• Identify customers who purchase items that sell below their typical average selling price for an individual item.
• Identify customers with a primary or secondary merchandise category = womens coats.
• Send this segment of the database an email campaign featuring the Sweater Fleece Coat.

Just like that you've make pricing data actionable via targeting variables!

Hillstrom's Pricing = $8,500 through December 31 (click here).

Here's How This Is Going To Work

It's come up repeatedly this year. Over and over and over again. A company is struggling, so I run my comp segment tables, and I notice that there isn't a clear merchandising problem.

Then I review results by price point band, and the story changes. I observe a fundamental change in strategy ... I can see a clear point in time when strategy changes (i.e. sales immediately decline within a price band while sales immediately increase within another price band).

I built simple regression equations, and I observed problems ... the price points being vacated were associated with customers most likely to spend money in the future.

I'd share the findings with Management ... and Management would communicate the importance of improving gross margin percentages. My work communicated the importance of improving future gross margin dollars.

So, I wrote a small booklet about the subject. You can buy the booklet here ... $7.99 in print and $2.99 via Kindle ... in other words, practically free. Show me a vendor who gives away their secrets for $2.99 and previously shared the topics for free on a blog.

At this point, you should be asking me an important question:

• "How much does it cost to execute a pricing analysis??"

Here's how this is going to work.

• For the remainder of 2019 the standard pricing analysis will cost a flat fee $8,500. The fee will likely increase in 2020 ... at this time, I'm thinking it will be $12,000 for 2020 and beyond.
• If you hire me for a Total Package project, you will get the standard pricing analysis for free as part of the Total Package project.  Total Package projects cost $15,000 for small brands, and up to $50,000 for brands > $1,000,000,000 in annual sales.
• Click here for details.

So that's a sweet deal, #amirite?

Hop on now - bump me at kevinh@minethatdata.com and get in line with your pricing project before project fees increase on January 1. Let's see if you have a problem that can be understood via pricing issues.

Closing The Store

If you are looking for the perfect scenario when you close a store, then you are looking for something like this.

The store is dying, it becomes unprofitable, the store is closed, and 20% of in-store sales migrate online after the closure. In the end, profitability is restored ... though top-line sales disappear.

When you read about store closures, this is the scenario folks are trying to get to.

Lands' End 10-Q

If you want to see what a business in transition looks like, take a look at the most recent financial filing from Lands' End (click here).

Macy's Downtown Seattle Store ... Gone

Gone (click here).

That's 3 out of 7 Seattle-area Macy's stores that are/will-be gone. Tradition-loving Seattle residents will feel the sting of this one, given how the store used to be the Bon Marche and much more importantly Fredrick & Nelson before that ... and how the store was the "anchor" of the Christmas shopping season.

3 out of 7 stores gone.

Do you remember how the catalog world contracted (dramatically) once e-commerce took hold? By the end of 2011 40% of all circulated catalog pages disappeared. Gone. They never came back, either. 

Now we replicate that process in retail. If you are a retail brand with 500 stores, 200-300 of them are going to disappear (the boring ones). 100 will survive and become entertainment centers. The other 100-200?  The jury is out.