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?

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?

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!

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.

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.

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??

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.

.

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.

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.

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?

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!

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.

Last Chance to Register

Just a quick reminder that Bill LaPierre and I will host a question and answer session for the catalog-centric portion of our audience on May 14 at 2:00pm EDT / 11:00am PDT. 

Click here to register.

With more than 250 registered attendees, we're looking forward to a fun discussion. Join us tomorrow, ok??  I mean, where else are you going to hear Bill's perspective about Murder Hornets?

Thinking Ahead

You can't read retail headlines without seeing gloom and doom ... gloom and doom generate clicks and ad dollars, so of course that's what you are going to read. 

• Yes, retailers will go bankrupt ... in large numbers.
• Yes, stores will be closed ... in large numbers.
• Yes, companies that survive have to liquidate billions of dollars of spring merchandise and that's gonna hurt.
• Yes, companies have no certainty regarding how willing customers are to shop in a store this fall.
• Yes, Amazon and Walmart and Target will get bigger while everybody else gets smaller.

Your job is to do something about what we all know is going to happen.

Think ahead four years from now.

• A third of malls are closed.
• Maybe half of traditional stores have closed.
• Traditional brands are bankrupt.
• Rent is CHEAP.

You are going to have an opportunity ... a big opportunity ... to do something very different in three or four years. Cheap rent is a big deal. Start thinking about what you'll do different now. Set up test concepts locally. Build upon what you learn once there is a vaccine for the plague.

Driving Sales to Retail

Here's a question from a reader:

• Is there a magic formula that establishes the lowest threshold beyond which a retailer should consider catalogs in their marketing mix? For instance, a B-C retailer with a minimum of $50 million annual sales, and an average order size of $100? 

I don't believe there is a magic formula.

But there are things to consider. Mail / Holdout Tests are the best way to determine the effectiveness of retail catalog efforts. There are popular agencies out there who use matchbacks, and the matchbacks always overstate the effectiveness of catalogs ... but they grossly overstate the effectiveness in a retail setting, because retail typical represents the majority of sales at a customer level.

Here's the results of a Mail / Holdout Test for a retail brand.

The secret to whether catalogs "can" work in a retail setting is two-part.

First ... do the "low organic percentage" channels deliver high volume? Look at the Call Center. Here, the organic percentage is zero, meaning all of the sales are driven by print. Notice that sales are only $0.40 per customer. With a low amount of volume, the catalog has less chance to be successful. If this number were $1.60, you'd have something because all of the $1.60 would be incremental and hence, would fully contribute to catalog profitability.

Second ... does the "high organic percentage" channel deliver high volume? Look at Stores. 98% of store sales are organic, meaning that the catalog only delivered a 2% lift in store volume. In order for catalog marketing to work for this store brand, store volume has to be high (i.e. $60.00 per customer during this time-frame instead of $20.00).

In the example above, the catalog (at a customer level) actually "worked". It only delivered a dime of profit, and one would wonder why the brand should go through so much effort and cash just to deliver a dime of profit per customer ... I'd tell my team to invest elsewhere. But technically, the catalog worked. And it "worked" because the Call Center delivered enough incremental volume at a 0% organic rate (and the online channel didn't disappoint) to push the effort into profitability.

If a retail brand wants to consider mailing catalogs (once we emerge from the plague and things return to normal), this is the math that is required to evaluate catalog marketing efforts.

P.S.: If your favorite agency tells you that you do not need to execute Mail / Holdout Tests in a retail setting, find another agency. Your favorite agency is lying to you if they tell you to use matchbacks and then matchback retail purchases to the catalog during a 2-4 week window after the mailing.

Outliers

When I worked at Nordstrom, Oprah, a powerful woman who hosted her own afternoon talk show, decided to feature a garment of ours on her show. 

Note:  This was in the time before podcasts and Instagram. Now everybody has a talk show.

I don't recall whether Oprah volunteered this unfettered sales surge upon us or if our PR department worked their magic. Regardless, the sales came rolling in.

It was my job to analyze what happened "after" the sales surge ended.

1. Sales of the item returned to normal.
2. The customers who bought the item were generally new customers, and generally didn't return to buy anything else. Some did. The vast majority didn't.

Customer response to outlier events is different. You may catch lightning in a bottle. You might declare bankruptcy because your stores were closed for the greater good. Regardless, customer behavior ... response to either outlier, is going to be different.

It's our job to ferret through the differences, evaluate the impact of the outlier, and then teach our Leaders what we've learned about customer behavior. Our Leaders have concerns, just like you do. Help 'em out.

Adjusting Winners

Let's say you run a $50,000,000 business.

• 280,000 annual customers.
• A Winning Item is classified at one that generates at least $75,000 a year in sales.
• You have 50 winning items.

In 2020 let's say that you "hit the covid lottery" ... you operate a business model that sells stuff that a customer needs to get through a pandemic. Your forecast for the end of the year looks different than it does at, say, J. Crew, right?

• $65,000,000 in annual sales.
• 360,000 annual customers.
• You now have 70 winning items ... items generating > $75,000 a year in sales.

Do you really have 70 winning items?

No.

You probably still have +/- 50 winning items.

Notice that sales increased by 30% ... and customers increased by 29%. Your growth isn't item-driven, your growth is customer driven.

Instead of having a sales threshold for determining winners, have a sales-per-customer threshold for determining winning items.

• If an item generated $75,000 annual sales and you had 280,000 annual customers, this means you generated (75,000 / 280,000) * 1,000 = $267.86 per thousand customers.

That's your cutoff ... $267.86.

Let's say that an item is forecast to generate $90,000 this year ... remember, you are also forecasting 360,000 annual customers:

• (90,000 / 360,000) * 1,000 = $250.00 per thousand customers.

The item did $15,000 better than the current winning "level" ... but on a per-thousand-customers basis the item was nearly $18 shy of what is needed for it to be classified a Winner.

In crazy times, you need to adjust your criteria for a Winning Item. Standardize your metrics based on how many annual buyers you have, as a starting point, ok?

Reminder: May 14 Event

Just a quick reminder that Bill LaPierre and I will host a question and answer session for the catalog-centric portion of our audience on May 14 at 2:00pm EDT / 11:00am PDT.

Click here to register

We are north of 180 all-star attendees so far (hint - that's you) ... why not join us right now??? Send me any questions you have ahead of time (kevinh@minethatdata.com). I'm not promising that I'll get to any questions, we'll see how the world changes between now and next week and see how the conversation goes.

During the summer I plan on exploring a series of video sessions ... either sessions where I'm teaching a concept, interviewing key people in email marketing or analytics or retail, or interviewing random people that would make for fun discussions. As certain topics resonate with the audience, I'll explore them more often. If various topics fail, I'll "pivot" away from them.

Interested in being interviewed? Send me an email and tell me what you want to bring to the table. Passion for pickleball earns your discussion topic extra credit.

You're probably already saying to yourself ... "Hey, how come Kevin doesn't have a title sponsor like all the big shows have?" Good question!! Why not consider hopping on board for what is likely to become America's Number One Management Analytics Show??

Combinations

The catalog portion of my client base has an interesting crosstab that they make decisions against. Below we see QuickScores bunched into segments ... A/B/C/D/F ... where "A" is best and "F" = Flunk.

Let's say you have a customer that is an "A" or "B" for catalog and an "A" or "B" for email. These are spectacular customers, and you'll likely send them everything you possibly can.

Look at the customers with catalog quickscores of C/D/F ... these customers shouldn't be receiving more than three mailings per year, and the "F" customers shouldn't be mailed at all, period. This is where an email quickscore of A/B/C becomes critically important. Across my catalog clients, customers have been slipping from A/B status to C/D/F status for the past fifteen years. This "slippage" isn't going to end, it will continue long after the virus is gone.

Look at the bottom right quadrant ... catalog quickscores of D/F and email quickscores of D/F. More than half of the customer file is dead weight.

This is one of those "combinations" that our industry doesn't like to talk about ... there are a ton of customers who are done with us. We're not going to reactivate them. They're done. We should move on as well.

The MineThatData Show: Kevin & Bill Host an Industry Event

Ok, we're going to try something different in a few weeks.

During the summer months (and possibly beyond), I am going to host a video show, featuring interviews, classes, and other assorted content. You'll see more about upcoming shows in future posts, and you'll catch all the latest news first on Twitter.

One of the first episodes of "The MineThatData Show" will be held live on May 14, at 2:00pm EDT / 11:00am PDT. This episode will be a can't miss event for the third of my audience with strong catalog marketing ties, as I invite Bill LaPierre (click here) of Datamann to participate in a free-flowing hour-long industry-centric discussion. 

What will we discuss? Who knows? The business world is changing every few days, so we can't have a firm agenda because a firm agenda will be outdated on May 14. So we'll chat about the current business climate, we'll address some attendee questions, and we'll try to have some fun ... I'm not remotely interested in a dry, boring, lifeless webinar that sells services.

Who is invited?  Everybody!  Some industry events shut out vendors or various individuals for whatever the reason, and they probably have good reasons for doing that. In this format, everybody is included.

At this time, you can email me questions ahead of the session (kevinh@minethatdata.com). I plan on enabling chat during the event, so you'll be able to ask questions at that time as well. There is no guarantee that questions will be answered.

Attendance is limited to five-hundred (500) participants. Registration information is outlined below. I'm encouraging you to join us!

May 14, 2020:  2:00pm EDT / 11:00am PDT

Registration:  https://us02web.zoom.us/webinar/register/7615885653270/WN_zMSVlkJ2QWa3VvtSnqExLQ

After registering, you will receive a confirmation email containing information about joining the event.