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.

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