July 06, 2020

Strategy or Tactic?

You ask your staff to come up with a "Discount Strategy" for your August email campaigns.
  • Is this a strategy, or is this a tactic designed to get a customer to buy something?
Your boss asks you to determine who will receive a Friends and Family postcard.
  • Is this a strategy, or is this a tactic designed to get a customer to buy something?
The CEO asks you to determine the smartest way to get customers to buy from a new product line.
  • Is this a strategy, or is this a tactic designed to get a customer to buy something?
Answer each of the three questions above. Think carefully about what a "strategy" actually is, and compare a "strategy" to the tactics you use to support a strategy.

July 05, 2020

Predicting Unknown Values

Here's some data from a business that routinely tests different percentage off ideas to various customer segments.

Your job is "fill in the blanks" ... what would have happened if you offered 50% off to a Good customer? What would have happened if you offered 10% off to a Poor customer?

Fill in each of the empty cells. Adjust the cells you don't like that exist in the table. Share your methodology and results with me  ... write up your solution ... I'll publish good predictions, ok?




June 30, 2020

Imagine What You Are Truly Capable Of ...

This was the largest Elite Program run of the past four years. The run required an open mind, something that sometimes eludes me.

What did I observe during all of these runs ... all of these companies ... all of these challenges?

It takes a lot of courage to face great uncertainty, and then have to make significant decisions that could well jeopardize your future. You ... yes, you reading this ... you made important decisions. You could have been wrong, so wrong. Some of you were wrong!! But you made your choices, and you lived with your choices. Nobody ... not a soul ... has the right to judge you for making difficult decisions under such challenging circumstances.

You might feel comforted to learn that (by and large) your decisions were right. If you cut back on your marketing budget and you observed that you made a mistake, you corrected your course. If you saw that business was +40%, you reacted and harvested as many new customers as possible. If you were spending $100,000 with Google and the data said you should spend $200,000, you spent $200,000 ... and you made the decision from home knowing you didn't have the inventory to support every customer and you were willing to disappoint some customers for the opportunity to please many, many more customers.

You closed distribution centers and offices. You opened Zoom and Skype. 

Some among you exceeded 2019 sales by between 50% and 120% during April and May. Yes, you were blessed, but you took the blessings given to you and you amplified your opportunity. You did that. Nobody else did. You did. You turned +35% into +85%.

If somebody told you on Thanksgiving Day 2019 that, from home, via video, you'd transform your business and grow sales by 50% in April/May and you'd be in quarantine ... you probably couldn't have imagined HOW that was possible. And yet, so many of you pulled your brands through this mess. Yes, you. You did it. 

Some of you faced demand catastrophes ... -30%. You also dealt with this from home, and you didn't get any of the benefits your peers enjoyed. They'll be paid bonuses for amplifying good luck, you'll take home a 20% pay cut for mitigating a disaster. Congrats! In many ways, your work was more important. You kept a brand alive when it flat-lined. That kind of effort doesn't get covered in trade journals, but it matters.

Whether you were -30% or +120%, you changed how business will operate ... forever. You had to change it.

I must say, I am so proud of all of you.

We focus on our differences. We lambast our peers because 3% of their belief system is in direct opposition to our belief system.

But since March 11 (what I call "Tom Hanks Day"), alone, we all worked together, each of us trying to solve a complex puzzle with highly incomplete information. Regardless of the "results", all earned an "A" for the processes put in place ... a process you couldn't have fathomed on Thanksgiving Day 2019.

Imagine what you are truly capable of ... given what you accomplished in the past 3-4 months?

June 29, 2020

Downstream Value

Take every customer you acquired between March 11 and the end of June, and measure their future spend in comparison to customers acquired over the same timeframe over the past 3-5 years.

What does the result tell you?

I'll leave the analysis hanging right there ... you need to go do your homework. Elite Program members already have a good idea if a COVID-bump helped their business this Spring, and they have a reasonable idea if the customers acquired during the pandemic are off to a good start or not.

June 28, 2020

The Great Experiment

I am on the verge of finishing all of the Elite Program runs. 

There were a lot of them this time around, and for good reason. This time, we had to ferret out the impact of the coronavirus on business.

It's not easy to ferret out the impact of the coronavirus on business.

Why?

Because of "The Great Experiment".

Some of you saw the quarantine coming and decided to stop spending money on housefile customers.

Some of you saw the quarantine coming and decided to stop spending money on acquisition-centric channels (Google, Facebook).

Some of you saw the quarantine coming and decided to wait ... you decided to read what was happening and then react to it. This turns out to have been the right decision for most of you ... so many were suddenly blessed with what I called a "COVID-bump" and responded by pouring gas on the marketing fire, creating a blaze of new customers that will pay back for quite some time.

Some of you did nothing.

Some of you exhausted your inventory levels trying to fill every possible order ... you maximized your opportunity.

In this run, I saw many strategies employed. Nobody was smart enough to know what would happen prior to March 11. Everybody, however, had the potential to adapt quickly once data rolled in ... 

... and that's the lesson of this run.

Don't let your heart become hardened by what you think you should do ... watch what happens, and react accordingly.

June 24, 2020

Patterns Repeat

That's why we refer to them as patterns.

Have you ever noticed how feckless most loyalty programs are?

It's not the fault of the loyalty program, that's for certain. Or the marketer. The marketer is paid to figure out a way to increase loyalty.

No, customers aren't loyal because the brand offers merchandise that is purchased at infrequent cycles.

As a consultant, you see this pattern repeat constantly. You measure annual repurchase rates, and they're about 22%. Only 11 in 50 customers who bought in 2019 will buy again in 2020. That's not a high rate. The rate is usually a "merchandise-driven" rate. Maybe you sell gifts. How often does the customer need a Christmas gift? Once a year? Yeah, well, that right there precludes loyalty. The customer isn't going to buy in August.

These same patterns repeat in the majority of my project work. The brand I'm analyzing offers merchandise that is only "needed" once or maybe twice a year. The customer won't ever become loyal because the brand doesn't sell "repeatables" ... merchandise that the customer must buy over and over and over again.

If we want to increase customer loyalty, maybe we bypass the traditional loyalty program and instead focus on what we sell? I mean, these patterns just keep repeating ... over and over again, right?

June 22, 2020

Speaking of Patterns

Here's what a typical day looks like ....
  1. I write some code.
  2. I run the code
  3. It might take 5-10 minutes for the code to run.
  4. I look at a curated list of "pundits" on Twitter, searching for themes among their missives.
  5. 8 minutes go by and my program finishes running.
  6. I analyze data.
It's in the eight minutes that a program runs that I look for patterns. I look to see what the pundits are saying. Are there themes in their comments? Is there news that they're responding to? Where are the pundits being led astray?

Pundits are always being led astray. The "news of the day" constantly pushes and pulls pundits in odd directions.

CNBC will report that Neiman Marcus is going bankrupt ... and the pundits respond with a "THIS IS WHAT IT MEANS" publication. It's almost never "what it really means", but it fills the void and allows the masses to feel like they're being strategic.

You've always got to look a few levels past what the pundits are saying. When a retailer goes bankrupt, you want to think ahead 3-5 years. Will the retailer still be in business? If the retailer is still in business, has anything fundamentally changed? Will the customer base change? Will the merchandise change? Will the expense structure change? Will the management team change? Is the fundamental flaw in the business model being addressed? What happens if the fundamental flaw in the business model is addressed but the competition fails, causing less traffic overall? These are questions you ask yourself ... you don't wait for a pundit to publish a "THIS IS WHAT IT MEANS" article!

Once you answer the question for yourself, once you develop your own thesis, you'll notice that there are patterns that are lying there, ready to be discovered.

You'll notice that A-level malls are likely to thrive ... while marginal malls are finished.

You'll notice that there are affluent customers who will keep affluent brands afloat.

You'll notice that there are lower income rural customers spending $250 a square foot at a Dollar Store ... and that pattern will reappear over and over and over again ... and you'll start asking yourself what that means ... not to Macy's or JCP ... but what that means to Target and Walmart? And you'll quickly realize that the darlings of 2020 ... Target & Walmart ... have issues in 3-5 years. You'll investigate 10K statements and figure out that Dollar Tree / Family Dollar do nearly $24,000,000,000 a year in net sales, and produce gross profits that are equal to or better than Target / Walmart, and that will cause you to really start thinking, because the pundits told you to focus on Amazon when you should be been focusing your thoughts elsewhere. The Amazon thought will lead you to the truth that these dollar stores didn't embrace e-commerce and therefore force the customer to shop the store and you'll immediately understand the feckless nonsense of the omnichannel thesis. Hmmmmmm.

You'll realize that these stores are being opened in areas where there isn't necessarily a nearby Walmart or Target to compete against a dollar store. You'll see inventory turns of 4x/year and then you'll think even more about the fact that you can't move your own merchandise that fast.

You'll realize that in an 83 page annual statement (click here) they mention the word Marketing one (1) time. Once. Won't that disappoint all of the digital marketing pundits out there?

You'll realize that the world changed and that the pundits almost never talk about dollar stores and you'll realize that the pundits are missing the story and you'll figure out the pundits don't really know what they're talking about.

That level of pattern detection will cause you to become a detective.

And by being a detective, your co-workers will perceive you as being "strategic".

Once you're perceived as being "strategic", doors will open.  

All because you are detecting patterns.

June 21, 2020

Pattern Detection

Back in the day my team supported an EVP of a business unit. This person had virtually no interest in us whatsoever. Oh, he enjoyed putting us through our paces ... the re-work ... the claiming that we never produced documents for him.

Once was what it was. The second time it happened you wondered what was going on? The third time? This was a pattern. And once you establish a pattern, it's up to you to figure out what to do about the pattern.

My team cleared our plans with the SVP of Marketing and the CEO. We didn't even share the plans with the EVP in charge of his own business until "his boss" approved the plan we authored.

Now this didn't go over well with the EVP of the business unit.

But it saved my team a lot of re-work.

And the performance of his business improved. Ultimately nobody cared that we cut the actual owner of the business unit out of the plans for his business, as long as we delivered acceptable business results.

If you want to be a Leader in business, you'll have to become good at detecting patterns. Customer patterns, website usage patterns, Executive Management patterns, they all become important as your career progresses. Start practicing this skill right now.

June 17, 2020

Pickleball Injuries

So our pickleball community opened up about six weeks ago. After being locked in a house for several months, people lost their minds. They played, and played, and played multiple times a day. They played ten (10) times a week, in temperatures over a hundred degrees.

For 3-4 weeks, that worked out really well.

Then the injuries started to pile up.

Calves.

Groins.

Knees.

Abdomens.

Back injuries.

Plantar fasciitis.

This happens in marketing all the time.

Does your average customer (notice I said "average") really need 18-24 catalog mailings per year? Not even close. But we overdo it, don't we?

Does your average email subscriber (notice I said "average) really need 250-300 pushed email campaigns per year? Not even close. But we overdo it, don't we?

My first job out of college was at the Garst Seed Company. My job was to analyze numerous experiments ... one of my favorite experiments was one where we "overdid it". We'd plant corn hybrid plants increasingly closer and closer to each other until they were so close together that they crowded each other out and generated no incremental yield. The plant breeder PhD's would take me out into the field to show how puny the crowded corn hybrids were vs. those spaced out properly. That lesson stuck with me ... to this day.

You cannot "overdo" it ... in anything.

June 16, 2020

When A Consultant Tells You What You Should Do

Arizona - my State ... is now one of the hottest Coronavirus regions in the world, in terms of cases (which I get is tied to testing and hospitalization isn't at levels like in other hot spots and deaths are FAR below other hot spots and blah blah blah blah I get it). But we're starting to cook here, regardless. 


You wouldn't know it by visiting the grocery store. Aisles are clearly marked ... you can walk in only one direction. The 15% of shoppers wearing masks adhere to the directive ... 85% of shoppers are not wearing masks and they're doing what they want. If they want to cut in front of you and touch all of the Brussels Sprouts, they'll do it. You're not going to impede upon their freedom.

Arizona had a short quarantine period, and was quick to open for business. From late March to late April, you simply never ran across somebody who had the virus. You'd think the virus was a hoax, because you didn't know anybody who had it.

In mid-May I ordered a carry-out pizza from a restaurant. When I arrived, there were 70ish people in the restaurant ... two or maybe three tables open with every other table filled with up to ten people who were all actively playing a trivia game. No masks ... not from the staff, not from the patrons, certainly not from the trivia host who belted out instructions into a microphone.

Like anywhere else, this wasn't happening for a lack of education. Everybody was told to wear a mask. Everybody was told to social distance. Everybody was told to stay home ... all the freeway signs told you to stay home.

And yet ... well ... here we are.

If you've ever been a consultant, you thoroughly understand this behavior.

Allow me to give you an example.

I launched this blog in 2006. During that time I've written ... hundreds of times ... of the importance of mail/holdout tests in print and email marketing. In my project work, it is common to generate a million dollars of easy profit for every $100,000,000 in annual sales a brand generates annually. Execute mail/holdout tests, apply the results on an annual basis, and become much more profitable. It's not hard.

I'd speak at a conference ... somebody would introduce themselves to me. The individual had been a long-time blog reader ... since 2010, for instance!! We'd talk about random stuff, but eventually land upon mail/holdout tests. I'd ask what their tests told them. 9 times out of 10, here's the response I'd get:
  • "Oh, we don't execute mail/holdout tests. And we aren't going to. What other ideas do you have to help us become more profitable?"
That response ... "what other ideas do you have to help us become more profitable" is just plain offensive. I gave you the idea ... FOR FREE ... hundreds of times ... and you chose to ignore the advice ... over and over and over again. Why?

Why?

If you are a mask-wearing advocate and you are fed up with people who won't wear a mask and won't take steps to keep everybody safe ... ask yourself if you implement the concepts you've been given for free on this blog 200+ times a year for fourteen years for free? If you haven't done that, well, hmmmm, interesting, right?

I know I've been guilty of this style of hubris over my career. I can't tell you how many consultants waltzed into Eddie Bauer and Nordstrom during my tenure and told me what to do and as they walked out of the building I'd begin immediately doing whatever the heck it was that I wanted to do.

It's human nature, folks. We do what we want to do. All of us. Maybe we're strict advocates of doing the right thing in one area but then we'll eat Cheetos every night in spite of knowing it's the last thing we should eat.

When a consultant tells you what you should do, vet the consultant. Maybe the person is a fraud. Maybe the person is an expert. If the person is an expert, keep your mind open to what the person is saying.


June 15, 2020

Really, Really Bad Models


First, industry vendors attack me (I know this because you tell me they do this when you meet with them) by saying that my models are too simple ... there are only a handful of variables and the techniques (logistic regression, ordinary least squares regression) are "old school". They attack, of course, because they're trying to sell something complicated. When they attack me, ask the attacker what s/he thinks about the term "parsimony", because if the person is a credible stat expert they know about the importance of building a model with as few variables as possible. If they understand the term and the meaning of parsimony, ask them why they are trying to sell you something that is more complex than necessary?

Second, just because a person is building you a model doesn't mean that the person has any clue whatsoever what they are doing. I don't care that they've been employed by "Vendor X" for the past four years and have worked with all of the "Leading Brands". Why suggest this? I've told you the story ... sitting in the Executive Conference Room at a "major brand". On one side of the table was the vendor, saying that their model and 1,033 variables (it was more than a thousand, yes ... more than a thousand) was the best option for the brand. On the other side of the table was a PhD researcher hired by the "brand" to "in-house" math-related stuff. His model was reasonable ... maybe 10-15 independent variables ... but his dependent variable was complete nonsense. He was predicting who was going to buy from the brand, not who was going to buy from the catalog. I asked the researcher why he didn't calibrate the model toward A/B style mail/holdout tests, tests that clearly showed that retail buyers had NO INTEREST in catalogs whatsoever and therefore shouldn't be included in any circulation plan? The conversation went something like this:
  • Researcher:  Are you actually questioning me?
  • Kevin: What?
  • Researcher:  What gives you the right to even question me or my credentials?
  • Kevin:  Because you don't know what you are doing. You have mail/holdout tests that clearly tell you that 80% of your customer base could care less about catalogs and shouldn't be mailed. Why are you building models that will prioritize those customers?
  • Researcher:  You clearly know nothing about building a brand.
  • Kevin: What you are doing will cause you to generate less profit, thereby harming your brand.
  • Researcher:  I'm mailing who I want to mail, and those will be customers who are loyal to the brand.
  • Kevin:  Do you agree that if a customer won't spend incremental dollars because of catalogs that the customer shouldn't receive a catalog?
  • Researcher:  No.
  • Kevin:  Why not?
  • Researcher:  Just because I don't. This conversation is over. I swear, you don't know anything about math, and "Vendor X" really doesn't know anything about math.
When the CFO asked me who to believe, I told the CFO to believe me.

The CFO again asked me which party (vendor or in-house employee) to believe? I said "neither".

I was not asked back for a few years.

Here's the problem ... if you aren't trained in statistics ... and you don't need a ton of training ... you don't know ... you COULDN'T know ... that you are being bamboozled by an "expert". There are times the expert doesn't know that the expert is clueless.

Our industry uses a lot of really, really bad models. The bad models cost us sales, and cost us profit.

Give a QuickScore a try. And if that's not the direction you want to go in, no worries. But then please figure out how the heck you are going to vet the experts when you don't have the skills to vet the experts.


June 14, 2020

We've Used The Same Model For 12 Years. It Still Works!!

This topic comes up in many "QuickScore" project proposals.

You hear the comments ... "We built our matchback algorithm in 2007 and we're happy with it and we aren't going to do any print mail/holdout testing because if we did that we'd lose sales and who wants sales to decrease? We are using an RFM+C segmentation strategy for print, and we established that back in 2008. It still works!! Everything is great. So we don't think that spending $8,000 on QuickScores is a smart idea, but we wanted to hear about your methods just in case we wanted to change something internally, thanks."

Mind you, a company like this spends $750,000 a year with catalog co-ops and grumbles all the way to oblivion wondering why those names perform at 40% of the level they performed at 10 years ago, but whatever, $8,000 is just too much to spend to modernize.

I'm no different. My car is nearly 13 years old. It still works!!

Well, there is a big difference. I've driven a lot of rental cars, and there are very few that drive as well as the 13 year old car I own. And I've only had to spend $1,800 fixing the car in the past decade. 

Meanwhile, you with the "same model you've used for twelve years" ... have you had a chance to see what other models look like when applied to your business? How do you know that what you are doing "still works"?

How do you know that what you are doing "still works"??

June 10, 2020

Last Chance for This Run of the MineThatData Elite Program

In this run, we're going to look at the impact of COVID on your business. This high-level analysis focuses on the style of metrics I use in more-detailed analytics projects.

Cost = $1,800 for the first run, $1,000 in each subsequent run, future participation is fully voluntary.

Five years of data, one row per item purchased.

Data is due by June 15.

Payment is due by June 15.

Analysis will be completed by June 30.

June 08, 2020

Training The Customer

We use price and promotion to train the customer how to behave.

It's hard to analyze a first purchase or a second purchase and learn anything about customer pricing preferences. But by the time the customer purchases for the third time, behaviors become solidified.

For many of us, it takes 6-18 months for a customer to get to a third purchase. During that time the customer will see 300 email marketing messages. The customer will know our promotional cadence. The customer will not believe that 20% off is relevant, because the customer has 60 examples of cases where you lied about 20% off and then offered 40% off. The customer will wait until you buckle.

I've mentioned this test numerous times ... in 1998 at Eddie Bauer we promoted all customers who had not purchased in three months. They all got 20% off ... or more. Then we noticed that purchase response had unnatural "bumps" at three months. So my team executed a test. We did not promote customers for six months, period. What happened?
  1. Customer response dropped dramatically for customers with recency = 1 month / 2 months / 3 months.
  2. Customer response increased significantly for customers with recency > 3 months.
  3. After six months, there was no difference in response or spend. There was, however, a huge increase in profit among customers who were not promoted.
We train the customer to behave the way we want the customer to behave. There are external factors (i.e. lower relative income) that we have to react to, of course, but we play a role in training the customer.

So let's train the customer appropriately, ok?

June 07, 2020

Deflationary Trends

When you read that Nordstrom generated 60% of sales in the prior fiscal year (pre-COVID) from ONLINE and RACK, you realize that something very different is happening among their customer base (click here).

Think about it this way.
  • In 2000, the customer would have spent 85%ish of sales in Full-Line Stores, 10% in Off-Price Rack Stores, and 5% via Online/Catalog.
  • In 2019, the customer spent 40% of sales in Full-Line Stores, maybe 35% in Off-Price Rack Stores, and maybe 25% Online.
So you've got a fundamentally different dynamic that you are managing, right? While this isn't mathematically fair to say, it's like there has been an implosion of the Full-Line Store concept resulting in a third +/- of all traffic to disappear. It's not a third, that's not how the math works, but for illustrative purposes it should cause you to think, and that's what I'm asking of you, right?

A company like Nordstrom builds two separate business units ... growing one while the other sets up for contraction.

Dollar stores are different ... they sprouted up and continue to expand as the middle class is whittled away. They built a customer base because their customers didn't have a choice ... less relative income, a lack of quick access to a Walmart. Dollar stores go up, mall-based stores die.

Now we turn to your brand.

The most common deflationary trend surrounds margin manipulation.
  • 2000 = Buy an item for $19.99 ... cost of goods is $9.00, gross margin = $10.99.
  • 2020 = Buy a comparable item for $24.99 ... at 30% off ... cost of goods is $6.50, gross margin = $10.99.
See what happened with margin manipulation?
  • The customer paid $17.49 ... not the $19.99 the customer paid in 2000. If you adjust for inflation, well, the customer really paid $11.77 in 2000 dollars. Similarly, you made less money after adjusting for inflation ... but on the surface, you made comparable gross margin dollars.
  • Your suppliers got squeezed. In return, your suppliers had to squeeze somebody, which leads to an awful lot of shoddy quality and lowly-paid employees outside of the United States.
Think about whether this dynamic happens at your brand or not.

June 03, 2020

The Deflationary Customer

During the past two months, we've talked about customers who warrant QuickScores.
  • Print-Centric customers who can warrant MORE mailings ... compared to the vast majority of your customer base who don't need any print whatsoever.
  • Email Clickers ... you have customers who click and don't purchase (bad), you have customers who click and buy stuff (the best), and you have the 90% of your email file who does nothing and needs to be experimented on.
  • High Returners ... DO NOT MARKET TO THESE CUSTOMERS ANYMORE, OK??? It's horrible for your p&l ... do not send Email Campaigns and/or Print Campaigns to these customers.
There's a fourth customer type we're going to spend the next few weeks talking about.

That customer?

The "deflationary customer".

In a perfect business, you want an "inflationary customer". You know ... the kind that Apple possesses. The Apple customer will spend $1,000 on a phone ... while the "deflationary customer" will buy a $199 Android phone. Which customer delivers more gross margin dollars to your p&l?

So we'll spend a few weeks talking about deflationary customers.


June 01, 2020

Summer Schedule

Most summers I scale back publication from 5 days per week to 3(ish) ... so that you get a letter from me on Monday morning, Tuesday morning, and Thursday morning.

My regular schedule reboots after Labor Day.

By the way, not all retailers are in a death spiral (click here).

May 31, 2020

Returns on a First Order

Thought you might find this one interesting ... this came up in a project a while back and it mirrors what we saw when I worked at Eddie Bauer back in the day.

Ready?

First-Time Buyer Rebuy Rates and Spend per Repurchaser in First Full Year on the File.
  • Did Not Return Anything = 38% Rebuy Rate, $205 Spend/Repurchaser, 9% Future Return Rate.
  • Returned 1+ Item, Kept 1+ Item = 38% Rebuy Rate, $210 Spend/Repurchaser, 20% Future Return Rate.
  • Returned Every Item = 44% Rebuy Rate, $180 Spend/Repurchaser, 12% Future Return Rate.
Let's assume that each returned item costs the brand $10 and let's assume that each item costs $40 for the customer to purchase. Let's assume that 20% of future demand is consumed by ad costs, let's assume that 45% of demand flows-through to profit. Which customer segment was most profitable in the first full year?
  • Did Not Return Anything = $77.90 future demand, $7.01 returned, $1.75 returns cost, $14.57 profit.
  • Returned 1+ Item, Kept 1+ Item = $79.80 future demand, $15.96 returned, $3.99 returns cost, $8.78 profit.
  • Returned Every Item = $79.20 future demand, $9.50 returned, $2.38 returns cost, $13.15 profit.
Which customer would you prefer to have, long-term?

The customer that didn't return anything is clearly best.

The customer that returned everything is second best. Apparently your generous returns policy creates good feelings ... resulting in a higher rebuy rate with lower future spend yielding a reasonable return rate and 90%ish of future profit.

This dynamic comes up repeatedly ... not all the time, but often enough that I needed to share it with you.

You measure this stuff, right?

May 28, 2020

Please Read This

You are capable of excellence like this (click here). 

Notice that the stuff that adds up to excellence here is largely tactical ... but also requires quick and decisive decisions. The latter is such a challenge, especially as a company gets older. I repeatedly see "older" companies where a 28 year old employee wants to make a decision (not a big one) and somebody who is 58 years old says NO. One wonders what the person who always says "NO" gets in exchange for squashing ideas?

May 27, 2020

It's Not Their Fault

Last week I posted a quiz question on Twitter (click here to see it). I presented a fabulous customer (from a demand standpoint), but the customer returns 80% of the merchandise the customer purchases, rendering the customer unprofitable. I asked the audience whether the email marketer should continue to send email campaigns to this customer?

48% of those who responded said YES, keep emailing the customer even though the customer returned $800 of $1,000 purchased, causing the customer to become unprofitable.

I asked readers WHY they would keep marketing to the customer?

One reader suggested that email marketing is no place for a brand to focus on an individual customer. What?

A second reader said analyzing returns was fun for "geeks" but without Executive buy-in it represented pointless research. I'm sorry for being a "geek", folks. I just want you to be more profitable.

Another reader said that returns are the fault of the brand, and are not the fault of the customer. In other words, the brand messed up, causing the customer to return the merchandise. How does a brand mess up so badly that 80% of what the customer wanted is returned for a refund? It's pretty much impossible, isn't it?

Let's say your company return rate is 20%. How far above 20% is the "brand" responsible for, and how far above 20% must the individual customer return rate be before it is the fault of the customer?

Let the data decide for you. Anytime the customer is "predicted" to return 60%+ of merchandise after "x" purchases you have a problem customer ... it "is" the fault of the customer.

There is no rule that says you must market to customers who return too much merchandise. None. Not one.

You can let the high returns customer buy from you and mess with your p&l all you want ... but don't force the customer to buy anything. No emails. No print. No Friends-And-Family events. None of it. Your job is to protect your p&l. Protect it!

May 26, 2020

Returns and Email Targeting: Actionable Outcomes

Here's a paraphrased quote from one of my followers on Twitter.
  • "You must be nuts to think that your client base would want to analyze email behavior across individuals. Nobody wants to do that. You keep talking like somebody who wants to do things like big companies do them."
#OhBoy.

I'm not talking "Big Company" strategy here ... I'm talking common sense. Either you want to do the right thing and make your company more profit and boost your career, or you want to be lazy.

You get to make the choice.

Here's a choice I'd make a hundred times out of a hundred. This company possesses the following metrics:
  • If an item is returned, the item costs the company $10 of lost profit to ship the item back and process it appropriately.
  • 45% of sales independent of returns convert to profit.
  • Each email delivered costs the company $0.003.
  • The company has a "Low Returns" segment ... future return rate = 10%. Most customers are here.
  • The company has a "Medium Returns" segment ... future return rate = 30%. Some customers reside here.
  • The company has a "High Returns" segment ... future return rate = 60%. Some customers reside here.
So let's overlay an Email QuickScore (remember those ... click here now) against the Returns Segment. Then let's measure demand, sales, expense, and profit in the next thirty days. Ready???


Email / Returns Profit

What do you observe?

At a demand-level, high returns customers are the "most valuable". This is where online marketers measure stuff, and as you are about to see that's not a great idea.

When I back out return rates from the next month, we see that high returns segments are not worth nearly as much.

Next, I subtract email costs (minimal) and returns costs (not minimal). Oh oh.

And finally, the bottom portion of the table shows us what profit looks like. High returns customers are uniformly unprofitable in email marketing campaigns.

Why in the heck are you sending email marketing campaigns to high returns customers?

Let's get busy doing something about this!

And if you don't have the resources to do something about this, contact me right now (kevinh@minethatdata.com) and I'll get busy creating actionable ways to combine email marketing and returns to generate your company more profit.




May 25, 2020

It's Time Again: The June Run of the MineThatData Elite Program

We near five years of MineThatData Elite Program runs ... and now we find ourselves with a run in the middle of a pandemic. 

So yes, this is probably the most important run in the history of the program. I'll explore how your customer base changed behavior in March and beyond. I'll explain if your best customers hung in there with you, or if your sales increases came from new customers (and if that happened I'll look to see if they bought again quickly). If your sales dropped by 40%, I'll help you understand the dynamics that caused that and see if there is hope in your customer data.

Key Analysis Dates:
  • Tell me right now if you are in/out, so I can plan properly.
  • $1,000 for existing Elite Program members, $1,800 for first-time participants.
  • Payment must arrive no later than June 15, 2020.
  • Data must arrive no later than June 15, 2020.
  • Analysis will be completed by June 30, 2020.
Get yourself in the program now ... given high demand expected during this run, I'm likely to limit the number of participants so that I can get through all of the work promptly.

May 21, 2020

A Delicate Balance

So here's the challenge you have. Remember our table from yesterday, one that showed how customers who bought 3+ times and returned a historically high rate of merchandise were likely to return a high rate of merchandise in the future?


So let's look at a customer with three purchases in the past year.
  • 55% chance of buying again next year.
  • Will purchase 2.5 times if the customer purchases.
  • Will spend $100 per order next year ... 4 items at $25 each.
  • 40% of sales flow-through to profit.
  • $20 of marketing expense expected next year.
  • Each item returned costs the brand $10.
We now have what we need to figure out whether we should "market" to the high returns customer.

Let's say that the customer historically returned 0% of his/her merchandise. 
  • Expected Spend = 0.55 * 2.5 * 100 = $137.50.
  • Flow-Through to Profit = 0.40 * $137.50 = $55.00.
  • Marketing Expense = $20.00.
  • Profit at 0% Returns = $55.00 - $20.00 = $35.00.
That's a profitable customer! Nice job.

If the customer returns 20% of what s/he purchased historically, then we have to assume the following, given that in the above table the customer will be expected to return 20% of future merchandise:
  • $137.50 * 0.20 = $27.50. That's an average of 1.1 items.
  • Each item returned costs you $10.
  • 1.1 items * $10 = $11 of profit out the window.
  • Profit becomes $35.00 - $11.00 = $24.00.
If the customer returns 40% of what s/he purchased historically, then we have to assume the following, given that in the above table the customer will be expected to return 36% of future merchandise:
  • $137.50 * 0.36 = $49.50. That's an average of 1.98 items.
  • Each item returned costs you $10.00.
  • 1.98 items * $10 = $19.80 of profit out the window.
  • Profit becomes $35.00 - $19.80 = $15.20.
If the customer returns 60% of what s/he purchased historically, then we have to assume the following, given that in the above table the customer will be expected to return 52% of future merchandise:
  • $137.50 * 0.52 = $71.50. That's an average of 2.86 items.
  • Each item returned costs you $10.
  • 2.86 items * $10 = $28.60 of profit out the window.
  • Profit becomes $35.00 - $28.60 = $6.40.
Do you see where this is going?

If the customer returns 28% of what s/he purchased historically, then we have to assume the following, given that in the above table the customer will be expected to return 68% of future merchandise:
  • $137.50 * 0.68 = $93.50. That's an average of 3.74 items.
  • Each item returned costs you $10.
  • 3.74 items * $10 = $37.40 of profit out the window.
  • Profit becomes $35.00 - $37.40 = ($2.40).
  • YOU ARE LIKELY TO LOSE MONEY MARKETING TO THIS CUSTOMER NEXT YEAR.
Did you know that I polled my Twitter followers, and about HALF of those who answered the poll thought it was ok to lose money emailing customers who abuse returns and cause the customer relationship to result in a loss ... even if the customer from a demand standpoint is fabulous?

Returns require a delicate balance ... you want to encourage returns because customers become more loyal ... but SOME customers simply take advantage of you. 
  • There is no rule that says you must continue to email these customers. 
  • There is no rule that says you must include the customer in your loyalty program.
  • There is no rule that says you must include the customer in your Friends & Family campaign.
The only person that stands between doing what is right for your brand and the customer who is costing you profit and consequently reducing the size of your salary increase and/or annual bonus and/or profit sharing and/or 401k contribution is you.

You decide if you're willing to lose money or not.

What say you??





May 20, 2020

A Backstory About Returns

Hint - you're going to hear more about returns in upcoming days. Why? Because they're the opposite of what the pundits tell you about them ... they aren't part of a seamless shopping experience ... they're a drain on resources and a profit black hole. And it's your job to do something about it.

Let's go in the "way back time machine" ... to 1993. 

It was my job to suppress customers who returned too much merchandise. If I wanted a decent performance appraisal, I had to increase profit by decreasing returns ... to the tune of a million or more dollars a year. I was told to write the objective, based on what I felt was possible. In other words, the objective was completely self-guided, and I determined for myself if I got a raise or not.

That's what accountability looks like, for those of you in the studio audience who are now telling my clients what they must do to "be successful in the era of COVID". You write the objective. You do the work. You test the results. And if you exceed your expectations, you get a raise.

So off I went to earn my raise.

Here's the thing about returns.
  1. They absolutely destroy profitability.
  2. You have to accept them, and accept them with grace.
  3. You can make a difference as a marketer ... you can slow down returns.
How does the marketer slow down returns?

I wanted to earn a raise. So I had to dig deep into a math book to solve returns issues. There is a function called the "Hyperbolic Tangent Function", and it turns out that the function applies well to customers who return merchandise. On a geeky level, I'd use the function to predict future returns.

On a human level, I had to explain what I was doing without ever allowing a person to see something that looked like TANH(z) = SINH(z)/COSH(z). How did I do that? With a simple table, showing what customers did in the subsequent year based on purchase history.


See what's going on there?

When a customer purchases for the first time, it doesn't make a ton of difference whether the customer kept the entire order or returned the entire order ... the customer is pretty likely to return a similar amount of merchandise.

Now look at a customer who purchased three or more times (the bottom third of the table). If that customer had a historical return rate of 80%, we can expect the customer to return 68% of next year's merchandise.

The secret, then, was to only penalize customers with many purchases and many returns ... if the customer returned 70% of historical volume and bought three times, that customer would be penalized.

How did we penalize the customer?
  • We stopped mailing catalogs to the customer.
How did that work out?
  • It was GREAT for lowering company return rates.
  • It was GREAT for profitability. We got the million dollars of profit I promised, which ultimately led to a promotion to Manager, which coincided with a healthy salary increase and a doubling of my bonus rate.
  • It was HORRIBLE for the call center.
Think about it this way. A previously "Great" customer (one who bought a lot of stuff) was now an "Unprofitable" customer, and was no longer getting catalogs. That customer was HOT. Angry. Upset.
  • "You say you gladly accept returns in every catalog you send and as a result you penalize me? Ta Heck with you!!"
It took a week or so before I got really tired of seeing the Call Center Director stop by and tell me what a moron I was.
  • "How can you do this to the customer? The customer spent $1,150 last year!"
I'd explain that the customer returned 85% of what the customer bought, so the customer was really a $165 customer ... and after you ding'd the customer $4 for every item we had to inspect and repackage ... or send to liquidations ... because the customer constantly returned our stuff, we were losing money by mailing the customer.

We'd just go back-and-forth ... the Call Center Director sick and tired of telling customers on the phone that they were unprofitable ... me sick and tired of explaining that we were losing money contacting customers who returned nearly everything.

Here's a funny thing ... we eventually found a balance.
  • Instead of mailing high returns customers 40 times a year, I'd mail them 4 times a year.
  • If the customer stopped returning everything, the customer got 40 catalogs a year.
  • High returns customers generally "learned" how much they could return.
  • Everybody won.
Just because a vendor tells you that you must accept returns in an omnichannel environment ... just because they tell you it is "table stakes" or they say something equally vapid and meaningless ... doesn't mean you have to MARKET to customers who return everything.

There is no rule saying you have to send 250 email campaigns a year to a customer who returns 70% of what s/he buys. No rule. None.

There is no rule saying you must invite the high returns customer to your FRIENDS AND FAMILY event. No rule. None.

There is no rule saying you must offer 40% off plus free shipping to the high returns customers. No rule. None.

Amazon knows how costly returns are ... or they wouldn't pawn the job off on Kohl's and UPS to process them.

As a marketer, your job is to do what is right for your brand.

It is not right to lose a fortune allowing customers to abuse your returns policy just so that you comply with a thesis promoted by vendors who make money selling software solutions that make returns easier.




.



May 19, 2020

Then Discounting Just Ruins Everything

We have our example from yesterday.  Let's say you have a $100 average order value ... you sell five items at $20 each, to make the math easy. Let's also make the math easy ... say it costs you $7 to have the item seamlessly returned to you, and we'll say it costs $5 to reprocess the item in your distribution center ... you lose $12 on every item that is returned.
  • Let's also say that your cost of goods sold is 40%.
  • Let's also say that pick/pack/ship expenses are 10% of gross sales.
Pretend that the customer keeps 100% of this order.
  • $100 average order value.
  • Cost of Goods = 0.40*$100 = $40.00.
  • Pick/Pack/Ship Expense = 0.10*$100 = $10.00.
  • Contribution / Variable Profit = $100.00 - $40.00 - $10.00 = $50.00.
Pretend that the customer returns one item.
  • $100 average order value.
  • Net Sales = $80.00.
  • Cost of Goods = 0.40*$80.00 = $32.00.
  • Pick/Pack/Ship Expense = 0.10*$100 = $10.00.
  • Net Returns Expense on One Item = 1 * ($5 + $7) = $12.00.
  • Contribution / Variable Profit = $80.00 - $32.00 - $10.00 - $12.00 = $26.00.
Pretend that the customer returns two items.
  • $100 average order value.
  • Net Sales = $60.00.
  • Cost of Goods = 0.40*$60.00 = $24.00.
  • Pick/Pack/Ship Expense = 0.10*$100 = $10.00.
  • Net Returns Expense on Two Items = 2 * ($5 + $7) = $24.00.
  • Contribution / Variable Profit = $60.00 - $24.00 - $10.00 - $24.00 = $2.00.
Now your vendor partners are going to ask you to take 20% off to "stimulate" a purchase. Of course they're going to ask you to do that ... the promotion makes their software/solutions look even more important and even more valuable.

Pretend that the customer keeps 100% of this order.
  • $100 average order value.
  • Cost of Goods = 0.40*$100 = $40.00.
  • Promotional Amount = $20.00.
  • Pick/Pack/Ship Expense = 0.10*$100 = $10.00.
  • Contribution / Variable Profit = $100.00 - $40.00 - $10.00 - $20.00 = $30.00.
Pretend that the customer returns one item.
  • $100 average order value.
  • Net Sales = $80.00.
  • Cost of Goods = 0.40*$80.00 = $32.00.
  • Promotional Amount = $16.00.
  • Pick/Pack/Ship Expense = 0.10*$100 = $10.00.
  • Net Returns Expense on One Item = 1 * ($5 + $7) = $12.00.
  • Contribution / Variable Profit = $80.00 - $32.00 - $10.00 - $12.00 - $16.00 = $10.00.
Pretend that the customer returns two items.
  • $100 average order value.
  • Net Sales = $60.00.
  • Cost of Goods = 0.40*$60.00 = $24.00.
  • Promotional Amount = $12.00.
  • Pick/Pack/Ship Expense = 0.10*$100 = $10.00.
  • Net Returns Expense on Two Items = 2 * ($5 + $7) = $24.00.
  • Contribution / Variable Profit = $60.00 - $24.00 - $10.00 - $24.00 - $12.00 = ($10.00).
Without discounts/promotions, we earned:
  • 0 Items Returned = $50.00 Profit.
  • 1 Item Returned = $26.00 Profit.
  • 2 Items Returned = $2.00 Profit.
With 20% off? Oh Boy!!
  • 0 Items Returned = $30.00 Profit.
  • 1 Item Returned = $10.00 Profit.
  • 2 Items Returned = ($10.00) Profit.
Your vendor partners and pundits and all the other folks who want you to do things that cause them to make money cause you to make less money.

Now I get it ... the pundits will tell you that the promotion will cause more customers to buy, thereby increasing profit. Woooooo!!! But if the customer returns anything (and yes, customers return stuff), profit evaporates at an ever-increasing rate.

Why are we so stupid?

Well, we don't run the math ahead of time, for starters.

Is there a way to stop customers from returning stuff? Maybe not.

Is there a way to mitigate returns via email marketing and print? ABSOLUTELY! More on that topic in upcoming posts.

May 18, 2020

It's Seamless Shopping! Just Return The Item

They'll tell you that the customer loves it.

They'll tell you that your software needs to handle it.

They'll tell you it is "table stakes" or they'll say something equally vapid to demand that you make it brain-dead easy for the customer to return merchandise.

Good for the customer.

Really, really good for the vendor selling software/services.

How about for you?

Let's say you have a $100 average order value ... you sell five items at $20 each, to make the math easy. Let's also make the math easy ... say it costs you $7 to have the item seamlessly returned to you, and we'll say it costs $5 to reprocess the item in your distribution center ... you lose $12 on every item that is returned.
  • Let's also say that your cost of goods sold is 40%.
  • Let's also say that pick/pack/ship expenses are 10% of gross sales.
Pretend that the customer keeps 100% of this order.
  • $100 average order value.
  • Cost of Goods = 0.40*$100 = $40.00.
  • Pick/Pack/Ship Expense = 0.10*$100 = $10.00.
  • Contribution / Variable Profit = $100.00 - $40.00 - $10.00 = $50.00.
Pretend that the customer returns one item.
  • $100 average order value.
  • Net Sales = $80.00.
  • Cost of Goods = 0.40*$80.00 = $32.00.
  • Pick/Pack/Ship Expense = 0.10*$100 = $10.00.
  • Net Returns Expense on One Item = 1 * ($5 + $7) = $12.00.
  • Contribution / Variable Profit = $80.00 - $32.00 - $10.00 - $12.00 = $26.00.
Pretend that the customer returns two items.
  • $100 average order value.
  • Net Sales = $60.00.
  • Cost of Goods = 0.40*$60.00 = $24.00.
  • Pick/Pack/Ship Expense = 0.10*$100 = $10.00.
  • Net Returns Expense on Two Items = 2 * ($5 + $7) = $24.00.
  • Contribution / Variable Profit = $60.00 - $24.00 - $10.00 - $24.00 = $2.00.
Oh my goodness.
  • Keep 5/5 Items = $50.00 variable profit.
  • Keep 4/5 Items = $26.00 variable profit.
  • Keep 3/5 Items =   $2.00 variable profit.
Make it seamless?

Make no money.

We're gonna need a solution for this, aren't we?

More on the topic tomorrow.

May 17, 2020

YouTube of Thursday's Webinar

If you missed it ... here you go (https://www.youtube.com/watch?v=vx6LNY9GU5w&feature=youtu.be).

If you want to watch it for a second time, have at it!!

Retail and Email

I know, I know, stores are generally not open right now.

But they will be open someday.

I've analyzed many retail brands ... and continually noticed interesting dynamics regarding email marketing. Here's a few from a recent project:
  • Those who recently purchased in a store were less likely to click through an email campaign next month, all things being equal.
  • Those who recently purchased in a store were less likely to purchase via an email campaign next month, all things being equal (though they were perfectly happy shopping in other channels).
  • Those who recently purchased via email marketing were less likely to purchase in a store next month, all things being equal (though they were perfectly happy shopping in other channels).
  • Those who exhibited continuous email clicking activity over time were less likely to purchase in a store, all things being equal.
Nobody is going to care about what I share (above) because the world changed and a virus has destroyed retail and almost nothing else matters outside of somehow getting a customer into a store (which will be really, really hard to do ... not impossible, but hard).

But we create our own problems, too.

When we tell people to click instead of shop in a store now, we change customer behavior ... and then we wonder why retail was so weakened that it could quickly be knocked down by a virus?

May 14, 2020

When Best Practices Change

In my project work, especially in the past few years, email marketing has become a much more meaningful component of client requests. They want to know if what they are doing yields a reasonable outcome.

Invariably, I'll share something and the client responds with a "we're doing this because it is a best practice" comment that just makes me cringe. Doing something because everybody else does something does not make doing something right.

Allow me to share something from the world of pickleball. There is a mother/daughter team that won the National Championship in November. The daughter, age 12 at the time of the tournament, plays different than the rest of the professionals play. Take a look at the image below.



The twelve-year-old is receiving the ball on the right side of the screen. Look at where all four players are standing. On the left side, both players are up close to the line ... called "the kitchen" in pickleball or the "no volley zone". Now look at where the mother is standing ... very close to the line. Finally, look at where the twelve-year-old is standing ... she's a full step back from the line.

The "best practice" in pickleball is to stand right up against the line.

The twelve-year-old violates the best practice. Frequently her mother also violates the best practice ... when the action gets intense, both the mom and daughter step back one step. 

Turns out this tactic gives the two of them more time to attack ... just a fifteenth or twentieth of a second, but that's more than enough time to give them a quick advantage.

During this video, the announcer, who is a professional player, tells the audience that this is not the way that anybody plays, "but it works for them".

Well, come on ... maybe it could work for lots of players, or for everybody!

Best Practices are Boring. If everybody does something the same way, might it be time for you to do things differently?? Best Practices change ... what was right at one time becomes outdated. Try something different. And what if it works? Try something different!



May 13, 2020

Channel Issues

In 2020 most of my projects have had a strong email marketing component ... and this was happening prior to the plague. Times change, and even an old-school marketing channel like email marketing warrants a re-look.

Here's the number one finding across my project work over the years:
  1. Email purchasers might spend $30 an item when buying via email marketing.
  2. Those same purchasers might spend $35 an item when buying via other channels.
In other words, email marketing has been poisoned by being assigned the role of "low-cost / promotional channel".

If your goal is to make less profit while growing market share (or maintaining market share), by all means, have at it ... give everything away.

If your goal is to run a healthy business, you'll look for a different strategy, going forward.


Strategy or Tactic?

You ask your staff to come up with a "Discount Strategy" for your August email campaigns. Is this a strategy, or is this a tactic ...