January 30, 2020

Advanced File Power: Incremental Power Generated by Business Activity

You'll end up with your equations for File Power (here's some SPSS code for your enjoyment).

compute predr = 0.
if (seg = 0) predr = -0.683 - 0.404*root_rec + 0.172*new + 0.219*exi + 0.161*abo + 0.122*bel
 + 0.052*kh01 + 0.168*ch01 - 0.371*ch03 - 0.574*mr00 + 0.105*mr01 + 0.066*mr02 + 0.265*mr03
 + 0.189*mr07 + 0.299*mr09.
if (seg = 1) predr = -0.152 - 0.356*root_rec + 0.113*new + 0.127*exi + 0.145*abo + 0.106*bel
 + 0.057*kh01 - 0.143*ch02 - 0.320*ch03 + 0.121*mr01 + 0.111*mr02 + 0.207*mr03 + 0.169*mr04
 + 0.099*mr06 + 0.232*mr07 + 0.274*mr09 + 0.162*mr10.
if (seg = 2) predr = -0.191 - 0.413*root_rec + 0.210*freq + 0.081*new + 0.218*exi + 0.070*bel
 + 0.090*kh01 - 0.119*ch02 - 0.267*ch03 + 0.069*mr01 + 0.058*mr02 + 0.109*mr03 + 0.166*mr04
 + 0.107*mr05 + 0.210*mr07 + 0.162*mr08 + 0.187*mr09 + 0.115*mr10.
if (seg = 3) predr = 1.869 - 0.772*root_rec + 0.165*bel + 0.058*ch01 - 0.208*ch03 
 - 0.091*mr00 + 0.061*mr02 + 0.138*mr03 + 0.135*mr07 + 0.072*mr09 - 0.132*ch02
 + 0.126*mr04 + 0.062*mr10 + 0.051*freq + 0.153*mr08.
compute predr = EXP(predr) / (1 + EXP(predr)).
compute preds = 0.
if (seg = 0) preds = 42.722 + 8.123*root_hst + 60.016*kh01 - 8.628*root_rec + 24.272*mr08
 + 6.848*ch02 - 12.104*mr02 + 5.336*bel - 9.537*mr01 + 0.109*history - 8.635*mr06 + 15.424*mr04.
if (seg = 1) preds = 26.817 + 5.158*root_hst + 57.236*kh01 - 10.018*root_rec + 26.155*mr08
 + 4.678*ch02 + 7.961*kh00 + 4.970*bel + 0.235*history + 21.957*mr05 + 11.116*mr07 
 + 8.769*mr09 - 5.628*ch03 + 26.061*mr00.
if (seg = 2) preds = 21.571 + 4.219*root_hst + 50.386*kh01 - 9.942*root_rec + 19.582*mr08
 + 3.931*ch02 + 5.743*kh00 + 5.363*bel + 0.187*history + 9.192*mr04 + 17.595*mr05 
 + 8.120*mr07 - 5.897*ch03 + 18.644*mr00 + 6.626*mr10 - 6.462*ch01.
if (seg = 3) preds = 27.397 + 3.665*root_hst + 52.893*kh01 - 19.142*root_rec + 14.774*mr08 
 + 7.244*ch02 + 5.514*kh00 + 0.160*history - 6.150*mr06 + 8.442*mr05 + 7.073*mr07 
 + 8.543*mr09 - 10.618*ch03 + 6.829*mr10.
if (preds le 30) preds = 30.
compute power = predr * preds. 

Here's where the fun starts ... you can measure the incremental future value of various marketing activities and merchandising strategies via our File Power equations.

For instance, I can score File Power using the equations above. Then, for Merchandise Category = 03, I zero out the attribute ... essentially assuming that no customer ever purchased from the category. I re-run the customer file through the code, and sum File Power again.

The incremental difference between the two runs is the File Power attributable to Merchandise Category = 03.
  • With Merchandise Category = 03:  File Power = 34,906,203. Average = 73.58.
  • Without Merchandise Category = 03:  File Power = 34,560,078. Average = 72.85.
Notice that there is very little incremental File Power generated by this Merchandise Category. The category certainly generates short-term sales/profit (clearly important), but does not add to future File Power.

Ultimately, we're comparing what this Merchandise Category brings to the table vs. a "replacement category" ... it's comparable to baseball metrics where you compare the value of Christian Yelich vs. a replacement player from the AAA level. In that world, you see that Christian Yelich might be worth 7 wins a year. The team might win 96 games, and his incremental contribution is worth 7. A team full of replacement value players (i.e. AAA players) get you to 50-60 wins. Then your best players add incremental value ... if you have 25 players on a great team you get maybe 1.5 or 2.0 incremental wins per player.

That's what we're simulating with File Power. The equations play a key role in determining the incremental value of different aspects of the business.




January 29, 2020

Advanced File Power

Instead of weighting transactions (which I've done many times), one can build a regression model that predicts twelve-month top-line volume. An equation allows us to compare the relative value of File Power attributes.

I typically build four Logistic Regression response models, and four Ordinary Least Squares Regression spend models.
  • Logistic Regression Response Models = 1x Buyers, 2x Buyers, 3x-5x Buyers, 6x+ Buyers, within 12 month file, 36 months of purchase history.
  • Ordinary Least Squares Regression Spend Models = 1x Buyers, 2x Buyers, 3x-5x Buyers, 6x+ Buyers, within 12 month file, 36 months of purchase history.
I use classic RFM variables (square root of months since last purchase, frequency, average order value, historical demand used in spend models) ... and I use 1/0 indicators for key channel-based attributes and key merchandise categories.

The result? A measure of File Power for each of your twelve-month buyers.

Tomorrow? I'll show you how one can use File Power to quantify the impact of a marketing and/or merchandising strategy.

January 28, 2020

New Customer File Power

There are all sorts of interesting dynamics with new customers.

Here we have a case of a brand that is really struggling to acquire new customers.
  • 141,995 new customers last year.
  • 182,582 new customers the year prior.
When we look at new customers by month, we quickly notice that File Power is increasing. The customers being acquired are "better" than they used to be. But there are fewer of 'em.

Notice that AOV continues to increase.

Notice that "Power Weight" ... the channel influence of each first-time buyer ... is getting worse.

So what is happening here?
  • Likely Culprit = Price Increases (I know this from other analytics in this project).
  • As prices increase, customers are dissuaded by purchasing.
  • Those who do purchase are "better" customers, and therefore, have more File Power.
  • Overall, this is a bad outcome for this brand.

January 27, 2020

Impact of Amazon on File Power

When I'm told that Amazon is killing a business, I'm usually skeptical about the comment, and for good reason! Amazon might represent between 30% and 40% of all e-commerce (and that's probably not good for those of you reading this) ... but they're likely 5% or 6% of retail in total, and that's not enough to matter (yet).

There is a telltale signature that suggests Amazon "might" have an impact on a business.

Typically, your brand does a reasonable job of holding on to loyal buyers. Those buyers like you for a reason, and while many of them shop elsewhere and switch loyalties at the snap of a finger, you still benefit from their fickle appreciation of your merchandise.

Amazon hurts client File Power in two ways.
  • Prevents new customer acquisition (customer one-clicks a commodity item on Amazon instead of trying your brand out for the first time).
  • Steals low File Power customers, causing a hollowing out of the bottom of your twelve-month buyer file.
The table above illustrates customer counts for a brand I recently analyzed. Red numbers represent declines, green numbers represent customer count increases. I segmented File Power into bands. Low File Power customers are on the left, High File Power customers are on the right.

Notice that File Power > 150 points shows gains, and the gains are biggest among customers with the Highest File Power (i.e. highest value). Low File Power customers are being constantly hollowed out. This brand has the signature of "Amazon Impact". It is constantly shedding Low File Power customers.

In the short-term, this dynamic can be overcome by squeezing as much value as possible out of customers with High File Power.

In the long-term, Low File Power customers become High File Power customers. This brand is doomed long-term because it will eventually be unable to generate High File Power customers because there won't be enough Low File Power customers to migrate to High File Power status.

Make sense?



January 26, 2020

How Does 40% Off Impact File Power?

Alright, let's get to the bad news.

Let's assume you have 100 customers who spent $100 12 months ago, via your online channel.
  • Current File Power = 100 * 0.328 = 32.80.
Let's assume that in the next month, 8 customers would purchase again without a discount, spending $100 each online. File Power Changes.
  • 8 Buyers With Recency = 1 and Recency = 13, $100 spent each time.
  • 92 Buyers With Recency = 13 and $100 spend.
  • File Power = 8*100*(0.862+0.317) + 92*100*(0.317) = 972.36.
But the marketer gets credit for moving merchandise, therefore, it's 40% off. And instead of 8 customers purchasing it is 11 customers purchasing, spending $100 ... but at 40% off the customer is only truly spending $60. 
  • 11 Buyers With Recency = 1 spending $60 and Recency = 13 spending $100.
  • 89 Buyers with Recency = 13 spending $100.
  • File Power = 11*60*0.862 + 11*100*0.317 + 89*100*0.317 = 945.83.
Oh oh.

Do you see what happened there?

The customer only spent $60 because of the 40% discount.

And you only got 11 customers to buy instead of 8.

As a result ... you WEAKENED the customer file while at the same time getting more customers to purchase. Well done!!

I know, I know, this runs counter to everything you've been taught.

In order to run a successful discounting/promotional strategy, you have to generate enough customers ... enough purchasers ... or generate a big enough increase in average order value to offset the loss in File Power caused by the discount.

I know, you don't want to hear this. You're going to come up with 14 reasons why this is wrong and why you are right.

Unless you've run your own File Power analysis (and don't tell me that repurchase reporting solves this problem or conversion reporting solves this problem ... Google Analytics and Adobe and IBM simply fail to provide File Power reporting), you don't know if you are hurting your brand. 

I get it, you're going to share this with your favorite guru, and that person is going to tell you not to listen to me. Old-school gurus will tell you that you got 11 customers to repurchase, and you want more recent/frequent customers. Those gurus are not analyzing the data properly. They don't have the tools to analyze the results properly.

Discounts and Promotions are taxes placed upon Brands for being unremarkable.

January 23, 2020

A File Power Lesson From 2000 - 2001

Here are two cases where I leveraged File Power, quite possibly to the detriment of my career.

In February 2000 I was able to use my File Power methodology to demonstrate that the Online channel ... E-Commerce ... would overpower catalog marketing, rendering it at best a secondary channel. I presented my findings to a team of Executives from Eddie Bauer, Spiegel, and Newport News. It was the only time I can remember being laughed out of a room. Within two years the parent company (Spiegel) would be bankrupt, and Eddie Bauer would go bankrupt a second time seven years later. 

The second time I had to make a business case regarding the importance of File Power was in the Fall of 2001. Our call center was experiencing -25% comps while the online channel was thriving. The President of the online/catalog division (my boss) crafted an analysis that fit perfectly into the File Power framework ... he wanted to see what happened in the future when you converted a call center customer to an online customer. Well guess what? The customer shifted future behavior ... the recent/modern online purchases had no impact on future call center purchases ... there was no call center File Power generated when a customer bought online ... quite the contrary ... call center customer recency fell, causing call center File Power to decline. Four years later (yes, it takes a while in the business world to change) the catalog was discontinued and sales increased and profit surged ... a response to understanding the impact of File Power.

If you apply the results of File Power properly, you greatly improve business performance.

You also teach Professionals how your customers behave.

File Power impacts just about everything we do. 

January 22, 2020

But One Channel Helps Another Channel, Right?? Right??

Not in the case of future File Power.

You hear this in the case of Retail ... you have a customer who previously purchased in stores, and you work terribly hard to get that customer to buy online instead. Then you wonder why store sales decline?

Store sales decline because the physical act of converting an in-store customer to any online channel helps overall File Power at the expense of individual channel File Power.

How do I know this?

Because I've run a boatload of models measuring the phenomenon.

Try this sometime ... take all weighted online purchases (36 variables, one for dollars spent in each of the past thirty-six months online) and all weighted mobile purchases (36 variables, one for dollars spent in each of the past thirty-six months via mobile) ... heck, do the same thing for your call center purchases while your are at it ... and then regress the 36*3 = 108 variables against spend next year in your Desktop/Laptop channel. You'll quickly observe that historical purchases in Mobile do not assist future Desktop/Laptop purchases.

The key is to have the 36*3 = 108 variables ... monthly purchase variables in each channel. This allows you to unlock the secrets of your business.

Back to retail.

Want to know why retail is dying? Because retail loses File Power as other channels gain File Power. When Google steers a purchase out of a store to an online channel, Google helps overall File Power but greatly harms in-store retail File Power. In essence, you lose a Recency = 01 in-store purchase and gain a Recency = 01 online purchase ... and the online purchase (via regression equations) does not increase future in-store purchase activity.

Yes ... Google, Facebook, and Amazon are emptying your favorite shopping centers. They've been doing this for a long time. It doesn't matter how many lies trade journalists, consultants, gurus, vendors, consultants, and research brands tell you ... the lies cannot overcome the truth revealed by simple regression equations.

January 21, 2020

How File Power Changes at a Customer Level

Here is a simple "weighting" process from a recent project. The coefficients are created, they're smoothed and modeled, and the outcome is standardized.

Let's take a customer ... purchased via online nine months ago at an AOV of $100. Read across the Recency = 9 row, then read over to the "Adjusted Online Weight" value. That value is 0.375. That's the file power associated with a purchase in that channel nine months ago.

In other words, this customer possesses $100*0.375 = 37.5 points of File Power.

If the customer does not purchase, the customer slumps to Recency = 10. The Adjusted Weight changes to 0.357. The customer now possesses $100*0.357 = 35.7 points of File Power.

The customer is weaker now.

Let's say that the customer purchases via mobile the next month and spends $100. We now have two purchases, and each purchase possesses different file power weights.
  • Online Recency = 11 Months, weight = 0.341.
  • Mobile Recency = 1 Month, weight = 0.682.
Therefore, File Power changes ... $100*0.341 + $100*0.682 = 102.3 points of File Power.

Remember, File Power is predictive ... it tells us what the future potential of a customer is, and it tells us what the future potential of the business is.

Let's say that instead of the customer buying via mobile the customer buys via your call center. The weights are different, and correspondingly, File Power is different.

  • Online Recency = 11 Months, weight = 0.341.
  • Call Center Recency = 1 Month, weight = 1.000.
  • File Power = 100*0.341 + 100*1.000 = 134.1 points of File Power.
Do you see the difference?
  • Pushing the customer to mobile resulted in 102.3 points of File Power.
  • Pushing the customer to the call center resulted in 134.1 points of File Power.
This is the challenge that modern marketers face. In so many projects, you maximize File Power by pushing customers to established channels. File Power frequently suffers when customers are pushed into newer channels. 
  • Traditional Marketers see this and they dissuade new tactics.
  • Careless Marketers don't have the tools to observe this behavior, and they push too fast into newer tactics, harming customer-level File Power.
  • Smart Marketers balance both activities ... allowing customer to buy traditionally ... but then managing newer tactics appropriately. In this case, the Smart Marketer would try to generate 1.5 customers via newer tactics to offset the loss of File Power.

January 20, 2020

Late Stage File Power Issues

Companies in the "late stages" of brand life invariably try to squeeze more value out of a customer file via loyalty initiatives ... they try to increase File Power in an effort to keep the business moving in a positive manner.

Here's a business I evaluated. The business is in "late stage brand life" ... meaning it is struggling in a manner that might be terminal.

End of 2019:
  • 474,430 12-Month Buyers.
  • Per-Customer Calculated File Power = 94.85.
  • Total File Power = 474,430 * 94.85 = 44,999,575.
  • Annual Demand = $56,573,998.
End of 2018:
  • 507,575 12-Month Buyers.
  • Per-Customer Calculated File Power = 88.60.
  • Total File Power = 507,575 * 88.60 = 44,969,986.
  • Annual Demand = $58,205,734.
End of 2017:
  • 523,977 12-Month Buyers.
  • Per-Customer Calculated File Power = 84.32.
  • Total File Power = 523,977 * 84.32 = 44,183,464.
  • Annual Demand = $57,936,264.
The customers who continue to buy from this business have better File Power, don't they?
  • 2019 = 94.85 per customer.
  • 2018 = 88.60 per customer.
  • 2017 = 84.32 per customer.
And yet, top-line volume is not increasing.
  • 2019 = $56.6 million.
  • 2018 = $58.2 million.
  • 2017 = $57.9 million.
Meanwhile, the customer file is shrinking.
  • 2019 = 474,430 12-month buyers.
  • 2018 = 507,575 12-month buyers.
  • 2017 = 523,977 12-month buyers.
This is a classic "late stage brand life" File Power issue. The brand is essentially dying, and Management is responding by squeezing as much volume out of customers as is humanly possible.

Across my project work, clients are capable of improving File Power. But clients struggle with Customer Acquisition and Merchandise Productivity. The result is a stronger customer file that doesn't yield sales gains.

January 19, 2020

It's Time Again!!

Every February, June, and October I execute a new run of the MineThatData Elite Program.

This is a subscription service where I analyze aspects of customer behavior. In addition to typical high-level Total Package elements like rolling twelve month metrics, comp segment performance, and repurchase / new-reactivated reporting, this run will feature a sampling of File Power information. Specifically, I will analyze if you have done anything to harm File Power over the past two years.

This isn't a full File Power analysis (an analysis that will be revealed soon), but it is a sampling, a glimpse into whether you have done anything to harm or improve File Power. Given what I've heard coming out of Christmas 2019, File Power has changed.

Cost?

  • First-Time Participants = $1,800.
  • Existing Program Members = $1,000.
I mean, come on, that's almost free!!

Send me an email (kevinh@minethatdata.com) and I'll send you file requirements and an invoice.
  • Payment is due by February 15.
  • Data is due by February 15.
  • Analysis is completed by February 28.
  • Five years of data (if possible) ... February 1, 2015 to January 31, 2020.
Let's get busy, ok??


January 16, 2020

The Third Biggest File Power Story of 2020

Have you ever executed a strategy like this? Business isn't great, and you need new customers and Management demands that you sell something RIGHT NOW or you will be fired. So you do the only thing you can do RIGHT NOW to keep your job.
  • 40% Off.
  • Free Shipping.
And guess what? Customers purchase something!! Who cares about the p&l implications of what you just caused, you needed to sell something RIGHT NOW or you'd lose your job and there was no way you were going to lose your job, was there?

You could have acquired 100 customers at full price.

You chose to acquire 140 customers at 40% off plus free shipping.

And then something awful happens.

The 140 customers you just acquired won't buy again unless you give them 40% off plus free shipping. Congratulations!!

This is a classic case of File Power Abuse.

You could have expected the following from 100 full-price customers.
  • 30% chance of buying next year.
  • $100 average spend in the next year.
  • 55% gross margin (after subtracting future discounts and shipping +/-).
  • File Power = 0.30*$100 = $30 ... Margin = $30*0.55 = $16.50.
  • Total File Power Margin = 100 * $16.50 = $1,650.
Instead, you signed up for the following future from 140 discount/promo buyers.

  • 33% chance of buying next year.
  • $95 average spend in the next year.
  • 30% gross margin (after subtracting future discounts and shipping +/-).
  • File Power = 0.33*$95 = $31.35 ... Margin = $31.35*0.30 = $9.41.
  • Total File Power Margin = 140 * $9.41 = $1,317.
See what you did there?

This is the third biggest File Power story of 2020. We traded our souls. By getting to keep our job RIGHT NOW we made it nearly impossible to have a quality job at the brand we love working for, long-term.

You measure File Power, right?

Right?

January 15, 2020

The Second Biggest File Power Story of 2020

The second biggest File Power story of 2020 has to do with marketing channels.

Here's what I commonly observe (again, how I calculate "File Power" will be explained later ... focus on the concepts today).
  1. Traditional Call-Center Customers have 100% "File Power".
  2. Traditional In-Store Shoppers have 100% File Power.
  3. Desktop/Laptop E-Commerce Customers have 85% File Power.
  4. Mobile fused with Social Customers have 70% File Power.
The ramifications of this finding (your mileage will vary) are driving modern commerce challenges.

You read about mobile having low conversion rates. That's a surface issue ... what I'm talking about is deeper than that. When you convert a customer from e-commerce to mobile, you increase the File Power of the customer with the purchase but you decrease the File Power by causing the customer to switch channels. In the short-term, you get a purchase. In the long-term, you weaken your business.

This is particularly harmful in retail, where you convert the in-store customer to e-commerce, you split future purchases across both channels, and you reduce File Power going forward. This is a huge reason why thousands of stores are closing and brands are going bankrupt. We (Marketers / Management) caused this to happen. We did it to ourselves. We didn't measure File Power, we didn't synthesize what it truly meant, and now we're paying the price for decisions we made years ago.

The themes above come up over and over and over again ... the second biggest File Power story of 2020.

You're measuring File Power, right?

Right?

January 14, 2020

The Biggest File Power Story of 2020

One of the most popular questions I'm getting is this one ... "What Is Happening To File Power Across Your Client Base?"

This graph represents one of the three biggest File Power stories I'm seeing. For now, don't worry about the numbers on the x-axis, they will be explained in due time. Instead, think about the concept illustrated in the graph.

For this brand, the twelve-month customer file is contracting ... contracting at an alarming rate. This is a common trend these days.

Also common is the "File Power" of those who are buying ... File Power is increasing. Think of File Power as a parallel to "Lifetime Value" ... it is a metric that tells us how strong a customer is likely to be, moving forward.

In the example above, the file gets smaller every single day ... but as it gets smaller, the customers who are still buying have increased File Power. In other words, the infrequent and low-quality customers are disappearing.

This is soooooooooooo common in my project work in the past year. One might theorize that Amazon is scooping up the infrequent buyers. One might theorize that increased prices result in fewer customers. In retail, one might theorize that reduced mall traffic among infrequent buyers yields this outcome. Others might guess that Google/Facebook are redirecting traffic to the parties they prefer.

The reason doesn't matter.

This relationship is frequently a "late stage indicator" of an unhealthy brand.

And if you don't measure File Power, you don't know if this is happening or not.


January 13, 2020

What's Coming Over The Next Few Weeks?

You might remember the ad cost simulation I discussed in December.


And you likely remember the past 1-2 weeks, where I've initiated a discussion about what I call File Power.

Both are interrelated.

When you craft a loyalty program, you are trying to increase File Power. You are trading margin dollars for customers.

When you send an email message ... five a week at times ... you are trying to increase File Power. You are trading content for customers.

When you cultivate an Instagram presence, you are trying to increase File Power. You are trading content for prospects, prospects that become customers.

All of this information can be translated into File Power. We can fully measure File Power, we can act upon File Power in a targeted manner, and we can simulate long-term profit/loss based on short-term marketing decisions.

What comes over the next few weeks is an exploration of what goes into File Power. I'll take it slow, I'll keep the geeky math contained to one long post that you can make a TL:DR (too long - don't read) reference to, and then I'll head more into actionable outcomes.

After exploring the concepts, I'll boil this down to a product that is likely to cost in the $24,000 - $25,000 range. And that will be a bargain.

What's in it for you? Well, if you want a significant cost reduction and you want to be part of the prototyping process, send me an email (kevinh@minethatdata.com) and for $9,000 I'll use the code I've prototyped on your data. You save a ton of money. What's not to like about that?

Tomorrow I begin the process of explaining the requests I've been getting in the past six months, explaining how those requests all translate to the concept of File Power.

January 12, 2020

Conference Evolution

The 40% of you who read this blog and are die-hard catalogers probably learned about the news yesterday (click here).

I've run my own consulting business for nearly thirteen years. In case you haven't noticed, the world was very different in 2007 than it is in 2020.

When I began my consulting work, conferences were critical to success. If you were invited to speak at NEMOA, you earned $20,000 to $40,000 in follow-up consulting work. And in 2007, there were very few voices with a public audience. My blog was a year old, and I quickly earned 2,500 followers. In no time at all. It pays to be out in front of a trend. Some of your 2,500 followers would attend the conference just to hear you speak in a live setting. The conference benefited from your attendance, and the speaker benefited from people hiring you. That's how the relationship worked back then.

The financial meltdown of 2008-2009, coupled with the evolution of social media ... that combination changed conferences.

In 2007 it was common for trade journals to pay writers. It was common for conferences to pay me to speak ... you'd make $4,000 for an hour of your time, and you brought 25 of your followers at $1,000 each so the conference made money and you made money. By the time I spoke at NEMOA in 2012, vendors were spending $20,000 to get an opportunity to address the audience. Do you see the difference? The conference doesn't have to worry about hustling to find 25 quality attendees ... the conference just needs to find a gullible vendor who has a generous marketing budget, and then has to find 25 warm bodies.

Around 2013, I began receiving emails from conferences, asking how much money I could bring as a speaker? Just like a NASCAR driver who has to bring $20,000,000 in sponsorship dollars, the equation flipped. Not surprisingly, the content at conferences got much, much worse.

As the content got worse, attendees disappeared. I spent my own money to attend NEMOA in 2014 just to see what the mix of paid content and attendees looked like, as I had been told by so many in my client base that they were fed up with attending conferences and being hawked by vendors at every turn. On the first day, the Leadership of a major industry vendor that so darn many of you use cornered me in a conference room, closed the door, told me to shut down my blog, shut down my consultancy, join them, and participate in an effort to "monetize the industry".

Monetize the industry.

Nice job, NEMOA.

Attendance at traditional conferences began slumping, and for good reason. Who wants to be "monetized"??

This trend required conferences to take new and innovative approaches. It became common for sports stars, media stars, or celebrities to be paid to speak about the kind of stuff that actual industry speakers used to speak about. Get five vendors to pony up $20,000 for speaking slots, flip the money to a celebrity, and the celebrity helps bring attendees back. This is no longer a conference where attendees learn ... this is called a "show" ... a place where you learn about retail from Gwyneth Paltrow, for instance. 38,000 people attend, and only 16,000 are actual retail employees. And nobody cares that the majority of attendees aren't retail employees.

Well done.

There's big business in "shows". A "show" that you know and love ... Shoptalk ... was acquired last month for the modest fee of $145,000,000

Yes, you read that correctly. One hundred and forty five million dollars to acquire a "show". Everything that is wrong about my industry is outline in the prior sentence.

You probably read this quote as well:
  • "... consistent with our goal to acquire product-led market-leading events in large industries that have achieved significant size, secured distinct customer bases and developed compelling value propositions, and that hold tremendous opportunities for organic growth and international rollouts."
Maybe I missed something ... but there's nothing in that quote about saving the retail industry ... the very industry that Shoptalk is dependent on.

Click on this one ... here's a few of the sponsorship opportunities available to you at Shoptalk 2020. Again, this is a "show". It's not a place where you learn how to be great at your job. It's a format that allowed the founders to sell for $145,000,000. Heck, you can obtain a 30'x50' booth for just $150,000. Is it any wonder the poor folks forced to work the booth are so obsessed about giving you a free pen in an effort to get you to learn about why QR codes are making a comeback?

$150,000 for 1,500 square feet. That's just $100 a square foot. You've been monetized down to the square foot.

That's how conferences (#shows) evolved in the past decade.

Conferences are dead. Long live shows!! Enjoy being monetized.

So what now?

Last year I performed a quick video-based presentation for Catalog University. Close to 200 Professionals registered for the one hour event. Nobody had to travel. Nobody ate a lousy $29 hamburger at a hotel bar. Nobody was forced to accept a free pen in exchange for hearing about why QR codes are making a comeback.

Fifteen months ago a talented woman asked me to be a guest on her podcast. To this day I still get feedback from people who have listened to the podcast for the first time. No consulting projects came from the session, nor did I expect a consulting project to happen. I just wanted to see what happened to the content over time. 

In other words, there are myriad ways to get honest content out there for you to consider. 1,550 email subscribers and 1,000 RSS subscribers get access to my 5x/week posts. Another 500-750 people read each post courtesy of Google and their algorithm. Video.  Collaborations. Partnerships. Podcasts (my podcast from 2015-2017 generated an average of 2,000 listens per episode ... didn't generate enough business, but that's my fault for not offering content that led to business).

In our modern world, when one door closes, a hundred vents open.

This year, I'm going to explore some of the vents ... different ideas that may or may not work, ways to grow my business while providing you with actionable assistance. Why cling to an old pay-to-play business model that has been monetized to the tune of a $145,000,000 acquisition when there are so many other ways to thrive?


P.S.:  Your turn ... what do you think I should do? Which "vent" should I pursue in 2020? Contact me at kevinh@minethatdata.com or send me a message on Twitter @minethatdata.

January 09, 2020

The New Channel

Incumbent industries make mistakes. When something "new" comes along, the incumbent goes through a process not altogether different than the "5 Stages of Grief".
  • Denial:  The new channel is irrelevant. Customers aren't going to change. A survey of 229 loyal customers proves we're just fine.
  • Anger:  Those online people are cowboys, working in their own offices not connected to the core business in any way possible. I hate them!
  • Bargaining:  If we just integrated the channels we'd get the best of both worlds.
  • Depression:  Customers from the new channel are worth so much less, we can't make the p&l work properly.
  • Acceptance:  "We're closing 225 stores this year."
New channels come with significant File Power issues.

Think about how online changed retail and/or catalog marketing. In both cases, the incumbent channel made horrible mistakes. I was there, I know. Somebody in the incumbent channel wants to know what future value looks like for the new channel. The data almost always tells us an interesting story ... the new channel yields customers who have lower long-term value (hence, lower file power).

This is where mistakes happen.

The incumbent professional reads the tea leaves and says "we shouldn't go after customers with lower long-term value".

The smart professional does the opposite ... she says "we should acquire twice as many customers from the new channel as we're currently acquiring because we'll increase File Power".

Think about it this way:
  • Old Strategy = Acquire 1,000 catalog customers at $15 of value in the next year = $15,000 of File Power.
  • New World = Acquire 800 catalog customers at $15 of value and 200 online customers at $9 of value = $13,800 of File Power.
  • Smart Strategy = Acquire 800 catalog customers at $15 of value and 400 online customers at $9 of value = $15,600 of File Power.
Which tactic makes more sense to you?

I want the most File Power, don't you?

The new channel typically generates customers at lower future value, which hurts File Power. The smart professional simply finds more customers in the new channel to offset the loss in File Power. The average professional reads the situation incorrectly, and throttles back the new channel, causing the business to fall even further behind on the road to modernization.

January 08, 2020

File Power Relationships

Recall that a first-time buyer (in our example) had a 34.9% chance of repurchasing on an annual basis (with one month of recency).

Who else possesses this level of file power??
  • 2x buyer, recency = 6 months.
  • 3x buyer, recency = 9 months.
  • 4x buyer, recency = 13 months.
  • 5x buyer, recency = 15 months.
  • 6x buyer, recency = 15 months.
  • 7x buyer, recency = 16 months.

Here's another way to think about the issue. Look at the curves for annual response by recency, for 1x / 2x / 3x / 4x buyers below:


We have an uneven relationship, don't we? A first-time buyer keeps losing file power, and then if the customer purchases the customer quickly gains file power, a lot of file power. Moments later, customer value "depreciates" ... it's like owning a car ... the car depreciates a ton the first year and then keeps depreciating thereafter.

But ... but!  If the customer purchases, the customer "appreciates" in terms of file power.

That's what we sign up to manage ... we're constantly losing file power, then BOOM the customer purchases and we ramp-up file power ... and then we're constantly losing file power once again.

Here's where things get interesting. When you mess up file power (acquire the wrong customer, sell the wrong merchandise, destroy gross margins via discounts), you don't generate the same file power illustrated above. This means that everything that happens downstream is "discounted" ... file power depreciates and the value of the customer is lowered due to mismanagement. The future health of the business suffers.

Think about this issue today ... when you see your favorite brand selling at 40% off plus free shipping, your favorite brand is playing a game of "tradeoffs" ... choosing the increase in the curves (above) to increase file power while losing gross margin dollars. If the net of the two relationships yields positive file power, the tradeoff is worth it.

Hint - the tradeoff is seldom worth it.

January 07, 2020

Building Momentum

Most digital analyses provide minimal or no insight into File Power. You see, File Power is not useful from an advertising standpoint, so why would anybody study File Power??

You are different.

You care about the health of your business. Your salary depends upon the health of your business. If your brand is not healthy, you need to accurately forecast inventory levels so that you don't have a bloated inventory situation that harms gross margins (and by default, harms File Power, which further harms the future of your brand).

Look at our table.

Yesterday, we described the fact that the customer file is in an ever-decaying state. We can mitigate this issue two different ways.
  1. More new customers.
  2. Higher quality customers.
Once the customer purchases for a second time, momentum begins to take over.
  • First-Time Buyer (Recency = 1 Month) ... 34.9% chance of buying again in the next year.
  • Second-Time Buyer (Recency = 1 Month) ... 47.4% chance of buying again in the next year.
  • Third-Time Buyer (Recency = 1 Month) ... 55.4% chance of buying again in the next year.
You can build momentum ... but you have to act immediately when a customer purchases for a first time. You can't let the customer lapse so far that you lose momentum. File Power is all about building momentum.

January 06, 2020

A Constant State of Decay

Ok, one of your digital vendors acquires a customer on your behalf. You have a new customer. Congrats!!

For so many of the businesses I analyze, half or more of annual demand comes from customer acquisition efforts. There really isn't a lot of "File Power" because the brand is simply in business to generate transactions.

Depicted here is a business that both needs new customers, and migrates customers to reasonably loyal status over time.

The table evaluates annual repurchase rates by recency / frequency combinations. This table is the foundation of any/every business. You likely created a similar table for your brand, correct?

Let's read down the "Freq = 1" column. These are the customers you recently acquired.

In the first month the customer is with the brand, the customer has 34.9% chance of buying again in the next year. Let that fact sink in for a moment. Your vendor just helped you acquire 100 customers, and in the next year 2/3rd of them will not buy again. They're just dead weight. Sure, you'll spend a ton of money marketing to these customers, begging them to buy again. All that effort, and 2/3rd of them will be inactive this year.

A smart business professional will quickly begin thinking ... thinking about whether the "right" customers are being acquired or not. This moment of self-reflection is positive in the development of a career, and is especially valuable when managing vendors.

Back to the newly acquired customer. If a month goes by and the customer does not repurchase, the probability of a purchase in the next twelve months decreases ... from 34.9% to 32.6%. Then another month goes by, and the probability of a second purchase in the next year drops to 30.0%.

In other words, File Power is in a constant state of decay. There are only two ways to solve the problem of File Power.
  1. Constantly replenish your customer file with new customers.
  2. Improve the quality of your customers.

January 05, 2020

File Power, an Introduction

People follow me on Twitter. I'm like "who is that??" So I'll check the bio. "SEO. SEM. Digital Expert responsible for growing more than 70 brands."

Holy cow!

I'm thinking that this person is following ... me. Impressive.

Then I start really thinking.

This person is responsible for growing more than 70 brands.

Assuming that 500 people work for a small brand, this person is taking credit for growth ... this person > 500 people. Or at least that's what my brain starts thinking.

I don't stop thinking it. 500 people working terribly hard, and then there's this person sitting at home, working for an agency, growing the brand. All because this person somehow caused an algorithm to redirect customers who were interested in cashews to "a brand".

Growing more than 70 brands.

Then I start thinking, "how does this digital expert know that these are the 'right' customers"??

Or more importantly, "does the digital expert care that these are the 'right' customers"??

This digital expert ... SEO, SEM, that kind of stuff ... gets paid if the prospect purchases something. That's it. That's the end of the transaction. Move on to another customer. Keep tricking the algorithm to redirect customers. Transaction after transaction after transaction. Growing brands.

Imagine if you couldn't leave your home for a year, and you were dependent upon somebody to bring you food. This person always delivered. You paid her, and she brought you food. Cheetos! She kept you alive. But at the end of the year, at the end of a thousand transactions, your Doctor loses her mind. You blood sugar is 1,293. You've gained 65 pounds.Your skin turned orange. Orange!! And you have a strange affection for somebody named Chester Cheetah.

But the person who brought you food completed the transaction ... she "grew your brand" (to the tune of 65 pounds). She got paid. And she got to put that fact in her Twitter bio.

This story has been nagging at me for two months.

It's clear to me that we've calibrated modern business to measure the fact that the patient was fed a meal. Not "the right" meal, just "a" meal. And we pay third parties handsomely for getting "a" meal to the patient.

What would happen if we fed our business the "right" meal?? What would happen if we worked hard to get the "right" customers, not just customers who respond to algorithms?

Some call this "lifetime value" or "CLV" for "customer lifetime value".

But it goes so much deeper than that.

Tomorrow, I begin a series where I address what I call "File Power". File Power is simply a measure of how strong your business "can be" over the next year. Based on the project work I've performed over the past two years, it has become clear that many of you are managing brands that have serious health issues.


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