November 21, 2019

Marketers Who Cheat

I see it in so many projects ... the marketing team is "cheating" in an effort to maximize their metrics so that the marketers look good.

What do I mean by cheating? Let me show you something.

The average price point per item purchased, past twelve months.
  • Orders Attributed to Old-School Catalogs = $48.88.
  • Email Orders = $39.65.
  • All Other Online Orders = $45.12.
Again ... this happens ALL THE TIME ... and it proves that the marketing team is cheating ... they're featuring merchandise in email campaigns that is, on average, a good five dollars (or more) cheaper than all other items.

Why should anybody care about this? Simple. Your merchandising team and your brand marketing team are looking for accurate representations of your brand. On average, your merchandising team is introducing new items that are likely to be more expensive than are the existing items being sold (this is such a key trend in 2019). Well, how are those items going to get a chance to thrive when your daily communication with the customer features items that are inexpensive and designed to help the marketer look good?

DO NOT CHEAT IN EMAIL MARKETING!!!

Represent your brand accurately. If you have to cheat, cheat with a purpose ... feature best sellers to improve your ROI, or if you have to feature inexpensive items feature inexpensive new items in an effort to boost new item performance (which guarantees future existing item performance).

Does that makes sense??

November 20, 2019

Need To Save Money?

For the catalog audience reading my daily missives ...

  • Greatly reduce catalog mailings to customers who have (at minimum) clicked through at least two email campaigns in the past year.
You have the data, you're already speaking to this customer 5x a week (think about that for a moment), and the customer responded twice in the past year. What more do you need to know?

If you mail the customer 15 times a year, reduce the number of contacts to 6.

If you are offended by the concept of mailing these customers less often (even though it is so much more profitable to execute this way) because you are a "Cataloger" then take the savings (9 catalogs a year) and reinvest it in customer acquisition and enjoy acquiring new customers. Your co-op sales rep will adore you for this and reward your loyalty with Prime Rib at The Keg. You win, they win. What's not to like about that?

If you need to save money, stop sending so many darn catalogs to customers who have instead embraced a 20+ year old marketing discipline. My A/B test results show that this one is a no-brainer, ok?

November 19, 2019

Fixing Retail

When we read about fixing retail, the ideas and tactics have merit. You'll read about "entertainment" and you'll read about "the customer experience". Both are important, no doubt about it.

Neither solve any of at least five structural problems with retail.
  • Shifting traffic that used to go into stores instead to the e-commerce channel.
  • Amazon.
  • Loss of ecosystem traffic via store closures and competitive challenges that result in less traffic in shopping centers.
  • Boring merchandise. Who wants to buy a pair of Dockers when you can just go to Costco and buy something similar for 1/3rd the price along with 64oz of nacho cheese?
  • Loss Gross Margins. Remember, gross margins fund EVERYTHING. Everything.
You have to solve each problem (above) if you want to fix retail. "Entertainment" and the "Customer Experience" barely solve one of the five problems.

If you are a retail expert (odds are you are or you wouldn't be reading this), tell me how you are going to simultaneously solve each of the five problems above?

I'll wait here for your solution ... go!





November 18, 2019

Retail Success ... and no E-Commerce!

Accounting for one out of every fourteen dollars in the UK (click here).

Do what is right for your business ... not what a pundit being paid by a vendor tells you to do.

November 17, 2019

Such a Fun Read!!

This one is fabulous (click here).

What Google and Facebook have done is this ... they've convinced feckless marketers to pay for interactions that, if the interactions disappeared, would result in orders anyway.

It's no different in the catalog industry, where boutique agencies prey on my client base via what are called "matchbacks", where you match all orders within "x" days and "y" criteria against those who received the catalog, and if the order matches via specified criteria the catalog gets credit. It's such a hopelessly WRONG methodology, one designed to protect industry vendors, paper reps, and printers. And everybody uses it, regardless. Heck, I've got hundreds of A/B tests at my disposal that prove that the methodology is hopelessly wrong and you share the results and STILL nobody cares.

Why is this the case?

In other words, why would a very smart individual willfully ignore facts? It's almost like our political situation, isn't it?

There are three phases in the evolution of this phenomenon.
  1. The professional doesn't know the facts exist and trust failed metrics as facts.
  2. The professional learns that facts exist and does not understand what the facts mean.
  3. The professional knows what the facts mean and chooses to ignore them.
It's (3) that I'm always dealing with. Take the merchant who loves to put together 88 page catalogs. If you tell her that at least half of the orders "matched back" to the catalog will still happen anyway if the catalog is not mailed, you have a series of problems that the merchant has to deal with.
  1. If the orders happen anyway, I probably have too many pages in the catalog.
  2. If the orders happen anyway, I'm probably mailing the catalog to too many customers.
  3. I love (1) and (2), therefore facts are taking away from me the thing I love doing.
  4. Therefore, I'm not going to adhere to the facts. I will ignore the facts.
  5. By ignoring the facts, I get to keep doing what I love to do.
  6. And if I decide to accept the facts, then "what" do I do to replace what I've been doing? If I don't know what to do next, then I'm stuck.
It's been my experience that it is terribly hard to fight this dynamic. Nobody wants to stop doing what they love to do.


P.S.: There is a TON of profit to be had in eliminating catalog pages and catalog contacts to individual customers. So much profit that you'd be able to waste it acquiring new customers unprofitably with catalogs, protecting your future. Put your pride aside and move forward. You have a future, a promising future!!!!!

November 14, 2019

A Brief Merchandise Attribution Example

Think about Merchandise Attribution this way.

Say your company has five merchandise divisions.

  • Mens
  • Womens
  • Kids
  • Home
  • Gifts
In 2018 each division generated the following sales levels.
  • Mens = $10 million.
  • Womens = $20 million.
  • Kids = $5 million.
  • Home = $5 million.
  • Gifts = $5 million.
  • Total Brand = $45 million.
Your Management Team decides to shut down the Home division. Projected sales through mid-November look like this, forecasted through the end of 2019.

  • Mens = $10 million.
  • Womens = $22 million.
  • Kids = $5 million.
  • Home = $0 million.
  • Gifts = $5 million.
  • Total Brand = $42 million.
Two questions:
  1. How much of the Home Division's $5 million in annual sales was truly incremental to the brand.
  2. How would you measure the incremental amount prior to shutting down the Home division at the end of 2018??
Discuss.

November 13, 2019

Merchandise Attribution

Let's tell a little story here.

Back in the stone ages of retail (1997) I worked at Eddie Bauer. We had a division in our stores called "Sport Shop".

If you walked into one of our stores, you'd first see the Sport Shop department ... a canoe handing from the ceiling, fishing lures, general manly outdoor merchandise and gear.

You'd watch a couple enter the store. The guy would look at the Sport Shop and stop dead in his tracks. The woman would walk right past the Sport Shop and head toward casual apparel or our tailored/professional line.

Well, this Sport Shop, when measured on a square footage basis, didn't pay the bills. It was a money loser ... a significant money loser.

Sport Shop was shuttered.

And then something fascinating happened.

Women's merchandise sales decreased a bit.

Men's merchandise sales decreased a lot. All of a sudden, we had a "mens problem".

In other words, what we really had was a Merchandise Attribution problem. The Sport Shop was the bait (play on words) for getting the man in the store, where the spouse frequently bought something for the man. Take the Sport Shop away, and you take the guy out of the picture, and then you reduce sales as a consequence.

Why bring this up?

Because in my projects I'm increasingly seeing "Merchandise Attribution" issues. A product category is discontinued, and as a result 2-3 other categories begin to struggle.

It's become obvious that almost nobody is studying Merchandise Attribution. It's a gaping hole that can and should be filled by the vendor community. It's entirely possible that this becomes an area of focus for me in 2020, paired with my Pricing work that has become so popular.

Show of hands ... how many of you are studying "Merchandise Attribution"????

November 12, 2019

A-Commerce

A quote from the Twitterati ...


Idle observation: this year 60% of sales on Amazon will be made by third parties, where Amazon itself did not set the price.

It's time we separated terms.
  • E-Commerce is the old-school stuff (20-25 years old) that most of our readers manage on a daily basis.
  • A-Commerce is something altogether different ... it's the ecosystem Amazon created,

In E-Commerce, you theoretically have a direct relationship with your customer.

In A-Commerce, you are an intermediary stepping between Amazon and an Amazon Customer.


Either strategy can work ... but make no mistake, these are two fully separate marketing / business channels. Your ability to guide your business into the future is fully dependent upon understanding the distinction between the two channels.

November 11, 2019

How Many Styles is Too Many Styles?

Let's say you have a category, and you have just one style / product in that category.

Then you add a second style / product. Sales rarely double, correct?

But sales increase, so you add a third style. And a fourth. And so forth. Eventually you have 250 styles.

How many styles "should" you have?

It's a difficult question to answer. You have to take into account your inventory forecasting abilities, warehouse availability and costs, product development expense, you name it.

It's not difficult to figure out what happens as you grow. Take all of your merchandise categories, and build a relationship like we see above. A classic "law of diminishing returns" relationship emerges.

You can use the relationship to determine an "optimal assortment size" by category given constraints ... if you can only have 900 styles / products, you can theoretically parse them out by category to grow top-line sales. We used to do this at Eddie Bauer more than twenty years ago, so the concept isn't a new one. But it is one worth thinking about, correct?

November 10, 2019

Always Discounting During The Cyber Monday Window

The past two days required a study of Thanksgiving - Cyber Monday activity.

Today, let's look at the share of volume going to items selling below their historical average price point, by year, for the brand we've been studying.

2014:
  • Nov = 25%.
  • Cyb = 33%.
  • Dec = 28%.
2015:
  • Nov = 17%.
  • Cyb = 31%.
  • Dec = 20%.
2016:
  • Nov = 22%.
  • Cyb = 35%.
  • Dec = 20%.
2017:
  • Nov = 22%.
  • Cyb = 27%.
  • Dec = 17%.
2018:
  • Nov = 27%.
  • Cyb = 34%.
  • Dec = 24%.
That's a consistent story, isn't it? This brand is always trying to get customers to buy during the Thanksgiving - Cyber Monday window by marking down items.

Study your Gross Margin metrics and determine if what you are doing is effective? Who cares if you gain market share during a six-day window if the market share gained results in damage to your Gross Margins?

November 07, 2019

Gap

Art Peck, CEO, steps down (click here).

4-5 years ago, we were constantly told by the experts that Gap and their "data-driven" approach was the key to success.
  • CNBC (click here).
  • Creative Directors were "False Messiahs" via Harvard Business School (click here). The brand was moving to a de-centralized, "data-driven" approach.
  • Gap touts "big data" in 2018 (click here).
  • "Art Peck is Preaching Omni-Channel Religion" (click here).
  • Forbes: Could Big Data Replace the Creative Director? (click here).
  • 2019 ShopTalk Retail Conference (billed as the future of retail) featuring Art Peck (click here for the video).
What we were told, once again, was wrong. Wrong. Completely wrong.

Now, it is entirely possible that every data-driven step the CEO took was "right" ... and it is entirely possible every step was necessary. It is entirely possible that his claim that Creative Directors are "false messiahs" was accurate. And it is entirely possible that all the store closures were needed. It was entirely possible that Gap had to go through a ten-year valley to emerge on the other side and he wasn't given nearly enough time to move the brand through the ten-year valley.

It is also entirely possible that the "retail industry" ... the experts, the pundits, the conferences, the vendors, the trade journalists ... it is entirely possible that they all continually get it wrong, every single day, leading you astray in the process.

To solve the retail problem, you need to solve five key issues concurrently.
  • Changing customer demographics ... i.e. the end of the Boomer generation as the core customer and the embrace of Millennials / Gen-Z.
  • The decimation of malls and shopping centers as a shared platform for retail brand traffic ... in other words, you have to have a solution for every store you abandon as shopping centers die.
  • You have to have cute merchandise. Period.
  • You have to present your brand in a compelling manner (i.e. great marketing and you have to have outstanding Creative Direction).
  • You have to have a complete, compelling, and cost-effective plan to acquire new customers.
When you listen to retail experts, ask them what their plans are for each of the five retail problems that must be solved concurrently, ok? We've largely proven (in the past half-decade) that data / omnichannel wonkery is not the answer.

Oh, There's A Pricing Thing Going On Here

Here was our business from yesterday ... and it's clear that volume shifted out of early November into the Cyber Monday window.

But what about pricing issues? Did this company discount everything, or did this company do something clever to manage Cyber Monday?

Let's look at the average price per item sold:
  • November = $21.26.
  • Thanksgiving - Cyber Monday = $21.38.
  • December = $21.87.
Nothing that's too big of a deal there.

Let's look at the percentage of items sold that are classified as a "Winner".
  • November = 74.4%.
  • Thanksgiving - Cyber Monday = 70.6%.
  • December = 74.0%.
Now that's interesting, don't you think? It's obvious that somebody decided to feature a non-winning item, or a series of non-winning items.

Let's look at the percentage of items that were sold below their historical average selling price.
  • November = 27.2%.
  • Thanksgiving - Cyber Monday = 33.6%.
  • December = 23.5%.
The picture is more clear now, isn't it? This brand is selling non-winning items at a discount. 

Is there a price point where this is happening? Yes! Let's look at items > $50.
  • November = 25.5%.
  • Thanksgiving - Cyber Monday = 31.2%.
  • December = 29.6%.
To manage the Cyber Monday window, this brand marked down expensive non-winning items.

Would you shift demand out of early November into the Thanksgiving - Cyber Monday window and then feature non-winning high-price-point items sold at a discount in an effort to protect gross margin dollars? Maybe. You'd have to perform the analysis to see if that's the right thing to do, correct?

But at minimum you should perform the analysis, correct?

November 06, 2019

An Open Letter To Amazon And The Folks Who Produce Amazon Catalogs

Dear Amazon:

My name is Kevin Hillstrom. I worked for catalog stalwarts Lands' End and Eddie Bauer in the 1990s. I helped close down a catalog division at Nordstrom in 2005-2006 and INCREASED sales as a result. I've spent the past twelve years helping 250ish companies understand why they are succeeding/failing, completing projects for nearly 80 catalog brands focusing on better targeting mailings (i.e. mailing far fewer catalogs) in a modern world.

In other words, I know a little something about who should receive catalogs.

You and I have a long and storied relationship, dating back twenty-ish years. You probably sent my household this catalog because somewhere back in 2007-2015 we purchased "something" directionally similar to what you sell in this catalog. I'm guessing you leveraged the magic of the "ship-to" address to decide that I should be a prime candidate for this special mailing. Not last year's mailing, mind you ... your criteria omitted that mailing. 

When I received this catalog, I had an instant reaction.


This reaction, of course, is better than the reaction a Twitter follower sent me (click here).

By now you've noticed a few interesting things about the catalog industry that you once destroyed and now are an integral part of. See, ten years ago printers were frustrated with you. Paper reps were frustrated with you. But when you decided to mail a catalog, all that changed. Have you noticed that there is a random person wandering your campus extolling the virtues of catalogs? That person is your paper rep. Nobody understands how he ended up with an office with a door when he doesn't even work at Amazon, but that's how this stuff works. He's not leaving, ever.

Aside:  When I worked at Nordstrom, the paper rep had so established himself with our print production team that he told that team not to execute my mailing plan (a plan that called for cuts in paper expense). The print production team chose to honor the paper rep until they were reminded who pays their salary & health insurance and 401k. A cautionary tale for the good folks at Amazon.

Did your printer open a satellite office near Denny Triangle? That's not a coincidence, and if you don't believe me ask yourself why a major printer rents office space a quarter mile down the road from Lands' End?? The person who randomly asks for a dinner appointment in a private room at a restaurant named "Purple" works for your printer. As an FYI, they're hoping you print more catalogs, monthly if at all possible, to a circulation depth of at least 100,000,000. They believe this could well become a "best practice".

By now you've heard of an obscure term called "matchback". One on end of the argument you have your own employees, the smartest mathematical minds in the world, folks who use experimental design and machine learning to determine exactly how your catalog interacts with the rest of your ecosystem. They know things the catalog industry couldn't possibly aspire to understand. On the other end of the argument is the boutique catalog agency that is helping with your catalog efforts. These are the folks who told you to perfect bind this mailing to "make a statement in the mailbox". These folks helped you arrive at 90 optimal pages ... so much better than 88 pages.

These folks introduced you to the term "matchback". For the past fifteen years, these people eschewed real science and instead convinced the catalog industry that every order generated in an eight week window must be matched back to the recipient of the catalog, thereby giving the catalog credit for the order. Your boutique agency wants you to believe that my 72 roll of eco-friendly toilet paper purchased on November 6 was CAUSED by the mailing of the catalog on November 4. In fact, the entire industry wants you to believe this lie.

Why would the industry want you to believe this lie?
  1. Boutique Agencies make more money if you believe the lie.
  2. Your paper rep makes more money if you believe the lie.
  3. Your printer makes more money if you believe the lie.
  4. You make less profit (although you probably don't care about profit) if you accept the lie as fact.
Do not, for one moment, fall for the seductive lure of the "matchback algorithm". Oh heck, who am I talking to? You already have the best mathematical minds in the world, and they certainly know how to target mailings and measure results, I mean why else did I receive a catalog from Amazon in the first place?

Oh oh.

They got to you, didn't they?

Your paper rep already read this blog post and somehow scheduled an "all hands on deck paper discussion at 2:30pm today". Your printer somehow scored front-row center court seats to the Maine / Washington basketball game on November 19 to keep you focused on print (and by the way, you're getting actual/physical paper tickets instead of mobile tickets - proof that paper matters). I implore you, don't go!! My printer once trapped me on a boat on Lake Washington for three hours. It felt like thirty hours for all parties. I'm confident the paper/printing folks don't want to spend time this way. It's just that you are really, really important to them.

You probably just figured out that your boutique agency is paying one of your gifted machine learning experts to speak at an "Executives Only" session in San Francisco to talk about the fusion of machine learning and matchbacks. Tell them that Alaska Air doesn't fly to the Bay Area. Please! Do it now. Do it before they get an article in the Washington Post about how catalogs boost the bottom line at Amazon.

I'm begging you.

Do something now before it is too late. Because if you don't do something now you'll mail 100,000,000 of these every month and every single order generated by Amazon will be credited to catalog mailings. Don't believe me? Ask Orvis. They've been there, they've done that.

Measure the living daylights out of this thing this year, and then target the catalog properly next year, ok?

Please. You are now the catalog industry. It's up to you to restore balance in the client-vendor relationship. If you care. And I'm quite confident this isn't that important to you. So, whatever.



P.S.: This is called "satire". If I worked for a printer I'd give Jeff Bezos whatever the heck he wanted, and I'm not exactly sure what he'd want that he couldn't buy with money outside of potentially a new President, but I'd spend every waking moment figuring it out. If I managed a boutique agency I'd personally pay the potential 1% Seattle city-based income tax placed on high-earning individuals for every high-earning individual at Amazon if it meant that my agency got more business. Yes, I'm exaggerating in the opposite direction here, for effect. Sometimes we just need to step back and take a breath ... this stuff isn't so important. Catalogs aren't dead, and they aren't making a resurgence. They're a decreasingly popular tool. Use 'em appropriately, and most importantly, measure them appropriately, ok?

November 05, 2019

Diagnosing Thanksgiving - Cyber Monday

In my projects, I take the "Day Before Thanksgiving to Cyber Monday" window and analyze it separately from the rest of November/December.

Here's actual data ... what do you see happening with this brand during the Thanksgiving - Cyber Monday window?


First of all, the brand is imploding. Regardless, what is happened in 2018? Demand shifted out of November, bleeding into Thanksgiving / Cyber Monday and the rest of December.

It looks like Thanksgiving / Cyber Monday window is likely cannibalizing business from earlier in November, doesn't it? Now if you are lowering prices to make magic happen here, well, God help you, because you are just throwing away Gross Margin / Profit dollars in an effort to help a trade journalist earn clicks. Congrats!!!

Tomorrow we'll look at pricing data in relation to the Cyber Monday window.



November 04, 2019

Lemonade out of Lemons

Yes, this image is allegedly real (click here).

If you plan something important for an entire year, of course you are going to make lemonade out of lemons ... what choice do you have?

If your merchandising team made a mistake and "ruined the new item assortment for 2019", well, it's your job to make lemonade out of those lemons.
  • Promote the new items that worked best via email, home page, landing pages, and Instagram. Promote the living daylights out of the "best of" the assortment.
  • Offer discounts on only the items that aren't working ... don't taint the entire assortment because a portion of the assortment isn't working.
  • Segment your customer file into bargain hunters and full-price fanatics ... offer the junk at a discounted price to your bargain hunters.
This stuff doesn't have to be rocket science ... use good judgment and make lemonade out of lemons!

November 03, 2019

Price Deflation

The transactional brand has no qualms with discounting.

A few years ago, a Private Equity firm asked me to speak with the Chief Marketing Officer at a business they were looking to acquire. During the call, the CMO said something that just stopped me in my tracks. Here's the paraphrased quote from the CMO:
  • "I don't care what we're selling. I can craft an offer, any offer, that will cause any customer to buy anything. Period."
That's the definition of a Transactional CMO!

I'll bet I've analyzed a dozen brands in 2019 that introduced new items at prices more expensive than the brand average. In other words, if the average item sold for $25, the brand introduced new items that cost $29.

This causes a unique dynamic among existing customers. Your existing customer sees a $29 item and says "that's too expensive". Instead, the customer buys the $25 item. Your merchandising / inventory / product team then measures results, and notices that customers "don't like" new $29 items. Now there's an inventory problem. What's the best way of getting out of an inventory problem? Discounting items.

Here's where the marketing team gets involved. They apply 25% off your entire order (how generous), meaning that $25 items are now $18.75 and $29 items are now $21.75. The customer finds both price points appealing, and buys something.

Of course, gross margins are normally around 60% ... so let's say that the customer places an AOV of $75. Cost of Goods = $30.
  • Gross Margin at Full Price = $75 - $30 = $45.00.
  • Gross Margin at 25% Off = $56.25 - $30 = $26.25.
So now you have to generate 71% more business just to equalize gross margin dollars. Good luck!!

A lot of the price deflation I'm seeing in 2019 starts with a merchant trying to generate gross margin dollars by introducing new items that are more expensive. This creates a customer response problem, which becomes an inventory problem, which becomes a marketing discounting problem, which becomes a gross margin problem which is addressed by introducing more new items at more expensive price points which ... yeesh!

Marketers Who Cheat

I see it in so many projects ... the marketing team is "cheating" in an effort to maximize their metrics so that the marketers lo...