October 17, 2019

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?

October 16, 2019

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.

October 15, 2019

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.





October 14, 2019

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?



October 13, 2019

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).




October 10, 2019

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.

October 09, 2019

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.

October 08, 2019

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??

October 07, 2019

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).

October 06, 2019

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.

October 03, 2019

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.

October 02, 2019

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).

October 01, 2019

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.


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,...