End of the Year

Well, we made it.

Take a break this weekend.

Then come back to work on Monday recharged and ready to tackle the chaos that comes our way in 2022. You've proven yourselves capable of dealing with co-workers getting horribly ill, having to work from home, supply chain issues, print/paper vendors falling apart right in front of you, and the end of the omnichannel era.

And yet, here you are. You persevered. You are talented.

You're gonna have a really good 2022. It has to happen. You've earned it.

End of an Era

In the National Football League, you get toward the end of the season, and you face a reckoning. 14 of 32 teams advance to the playoffs, two more than previously advanced from 1990 - 2019 ($$$). This means that many, many teams have false hope. You can have a 7-8 record, and because a game has been added to the schedule this year ($$$) you could finish 9-8 and potentially make the playoffs. It's hard to do that, however, when you spent 3.5 months winning six games and are now required to spend 3 weeks winning 3 games.

It's painful when it is over. Maybe your are a Broncos fan, or a fan of the Washington Football Team, or Cleveland Browns. It's about over. Vikings / Saints / Falcons fans are on the brink. Only one in five of the Dolphins / Chargers / Raiders / Ravens / Steelers will move on to the playoffs.

Sometimes you face more than missing the playoffs ... you face the end of an era. Your Seattle Seahawks are there. It's possible everything changes there ... coach, management org structure, departure of the legendary quarterback, it's all up for grabs.

Yesterday I wrote about retail and the coming "financial manipulation" of retail brands. Spinning off e-commerce divisions, spinning off the off-price channels, it's the end of the omnichannel era, and it's like having a 5-10 record with two games left in a forgotten NFL season.

Always remember that the end of an era is usually paired with a new beginning. There is hope, there is optimism.

Catalog brands face the end of the print era ... sure, there will be catalogs in 2031, but there won't ever be trust of the paper industry again. Retailers face the end of the omnichannel era ... sure, businesses will be tightly integrated in 2031 but the pundit-fueled dream came to an end in 2021.

If you face the end of an era, get busy. Start anew, and be optimistic. Rebuild. Demonstrate some Leadership. Take care of your customers. You don't have to adhere to old standards.

Spinnin' 'em Off

You've likely read about Saks spinning off their e-commerce division in an effort to increase shareholder value. You're likely read about Macy's saying "gimme some of that" after hiring the same firm Saks used to explore options. You've likely read about Nordstrom thinking about spinning off their Rack division after a decade when, without Rack, Nordstrom would have had to spend more time answering why Full Line Stores weren't performing well.

Needless to say, the omnichannel punditocracy has little patience for this. "The customer wants a seamless, frictionless omnichannel experience and you can't have that if your e-commerce division isn't integrated with your stores. This is nothing more than greed and stupidity." That's a paraphrase of a quote I read last week. No need to out the author.

You either spin something off because it is a drag on the core business, or because the core business is dying and you want to allow the positive side of the business to generate more value for shareholders.

If the fabled omnichannel thesis actually worked, nobody would be talking about spinning anything off ... you'd see investors clamoring for more integration.

Right?

Investors aren't doing that, are they?

Fifteen years from now college students will spend $400,000 a year on tuition to question why retail brands obsessed about integrating everything between 2001 - 2021. They'll ask interesting questions like "why did a retail executive want a customer to visit a website five times, place merchandise in a shopping cart, abandon the cart, then get hounded while traversing the internet to go back to the cart, then get several emails telling the customer to take an additional 20% off to buy the stuff left in the cart - so the customer bought the merchandise and then asked to have the merchandise available at the store for pickup later that day, obtain the merchandise after taking a 20 minute drive, take the merchandise home, try on the merchandise, find out there is a problem and then be forced to go online and fill out a returns authorization form, package the item with the form, and then drive to a UPS store to drop off the item for a return ... they'll ask why this process was called 'frictionless commerce'?".

There's a reason the financial folks are demanding that retailers go in a different direction than we've been taught for the past twenty years. The thesis we've been told to adhere to for two decades did not deliver the financial goodness promised to us. So the financial folks are pushing retailers in another direction.

What should you do? You should do whatever is right for your business ... don't do what somebody else tells you to do.

But We Generate Profit From Our Loyalty Efforts

You probably do!

Let's assume your 12-month buyers have a 27% rebuy rate, and if they repurchase they spend $150 each. Let's assume you begin the year with 100,000 of 'em. Let's assume 35% of sales flow-through to profit. Let's assume that you spend $10 marketing to each customer during the year.

Now you ramp-up your retention/loyalty efforts ... you spend $300,000 to increase rebuy rates from 27% to 29% and to increase spend/repurchaser from $150 to $160. This, by the way, is TERRIBLY hard to do.

What does the story tell us?

Two really important points.

First, sales increased nicely (about 15%) resulting in a modest profit increase of about $83,000. So yeah, you generated profit from your loyalty efforts. They "worked". You likely paid for a chunk of your salary.

Now what happened to the customer file?

• Old Scenario = 100,000 * 0.27 = 27,000 active customers.
• New Scenario = 100,000 * 0.29 = 29,000 active customers.

You didn't materially change your future trajectory, did you? You still need to get the 73,000 new customers just to keep the bus moving.

This is why I keep imploring you to focus on new/reactivated customers. You need as many of 'em as you can get, because loyalty efforts generally don't move the total active customer needle.

Rebuy Rates

Almost twenty years ago I wrote a book that had nearly two-hundred pages of text talking about rebuy (repurchase) rates.

Rebuy rates are so darn important - and they are so darn easy to calculate.

Take every customer who bought during 2020 (100), then calculate the percentage who bought again in 2021 (27), then divide 2021 repurchasers by your 2020 inventory of customers (100) and you have your rebuy rate (27/100 = 27%).

Why do rebuy rates matter?

Rebuy rates matter because they indicate the type of business you manage. The rates are not reflective of success or failure (unless compared to prior years). The rates simply tell you what your marketing purpose is.

When overall rebuy rates are < 40%, your purpose as a marketer is to find as many new customers as possible at the lowest possible cost.

When overall rebuy rates are > 60%, your purpose as a marketer is to find as many ways as possible to increase the number of incremental purchases loyal customers place.

The biggest mistakes I see are when a company with a 27% rebuy rate tries to act like they have a 72% rebuy rate. The company invests all sorts of money on discounts and bribes to encourage customers to become "loyal". This tactic (push loyalty efforts to customers unlikely to repurchase) just doesn't work. Never has. Those who say it "works" are looking at incremental gains in sales/profit, which happen ... but the work the marketer performs does not fundamentally change the sales trajectory of the brand.

About 80% of my client base possess twelve-month buyers with rebuy rates < 40%.

This means 80% of my client base needs to be obsessed with customer acquisition.

Very few companies are obsessed with customer acquisition.

Merry Christmas

As has been tradition since Christmas 2006, have a Merry Christmas, dear readers!

P.S.: Seriously, have a wonderful Christmas. Ignore news. Ignore Facebook. Appreciate the people you know.

Customer Loyalty

I wrote a thread on Twitter over the weekend that was allegedly read by 120,000 souls. Who knows if that is true?

What was the thread about?

Customer Acquisition vs. Loyalty.

You already know that my view on the secret of business success is in low-cost customer acquisition programs. Programs, not campaigns. Eating, breathing, sleeping customer acquisition. Not just paying Google+Facebook money.

After Christmas, I am going to spend time modernizing a lot of the writing I did back in 2006-2007. We're at a point now where decades of vendor lies about retaining customers and nurturing loyal customers (spread primarily to foster purchases of vendor products that facilitate customer retention and loyalty) results in a gaping hole in the marketing landscape.

You will be the person who fills that hole.

We need to get back to understanding why a business grows and thrives. If you sell merchandise that a customer only needs 1-2 times per year, you might have loyal customers but you won't be able to use "loyalty marketing" to push that customer beyond what the customer naturally wants to do.

So that's what we are going to talk about after Christmas.

P.S.: You said you want a homework assignment over Christmas? Ok. I want you to write 500 words about why the phrase "It costs eight times as much to acquire a customer as it costs to retain a customer" is complete nonsense.

Losing

Back to Pickleball.

Every Friday in my community we play what is called a "Ladder". Imagine 12 players. The top 4 players play in a match, the next four best players play in a match, and the three worst players play in a match. Three games to fifteen, win by one. You play with each of the players in your group. Sum total point at the end of three games. Top score is the winner, and they move up to the next group. Low score is the loser, and that person moves down one group.

We play about sixteen ladders each winter season. The system is really good at determining good players, separating them from everybody else.

I've finished last three out of four weeks, and was tied for last the other week. My play is woeful during this stretch. Eventually your confidence takes a hit - you become passive, afraid to make a mistake, and passive play leads to a lot of winners for the opposition, which is just as bad as making mistakes.

Losing confidence. That's a big deal in marketing, isn't it? You keep paying Google for names, you keep paying Facebook for names, and when you try something different it "doesn't work" and eventually you think very few tactics actually work and next thing you know you don't have any confidence whatsoever. The analytics people put the chains around your wrists, handcuffing you from doing anything interesting. Your game becomes stale.

In Pickleball we have to reinvent ourselves every six months or so, and if we don't do that our games become stale and we lose our competitive advantage.

Might the same thing be happening to some of you, when it comes to marketing in 2022?

A Parsimonious Model

Several years ago, an employee from a vendor that many of you use (and this vendor has many readers of this blog) said something about me:

• "He's an idiot. His models are just too simplistic to matter. Don't work with him."

Those of you who earned a statistics degree understand the requirement for models to be parsimonious (click here). The TL:DR version is that the modeler should use as few variables as possible to explain the data in the dataset. If you have a choice between a model with 4 variables and one with 1,400 variables, you should strive to use 4 variables.

In marketing, model builders model off of a dataset and then rank order either the same dataset or a comparable sample of data from best-to-worst performing customer. The modeler then sums total demand/sales by decile or one-percentile or whatever. The modeler looks to see if the addition of variables results in a better ranking of customers from best to worst.

In most cases, a very small number of variables, often under a dozen, explain the data just as well as a model with 200 variables or 600 variables or 1,400 variables. In those cases, you go with a dozen or fewer variables.

Now go back to the statement above.

• "He's an idiot. His models are just too simplistic to matter. Don't work with him."

Does the statement align with the concept of parsimony?

Nope.

In other words, the critic is revealing his lack of knowledge of statistics.

One of the all-time worst meetings I've ever been in was at a major retail brand. A vendor (one many of you work with) built a model with more than a thousand variables for the retailer. The in-house statistician correctly pointed out to the vendor the folly of building a model with more than a thousand variables. 

Of course, the in-house statistician butchered the dependent variable ... he used total company sales instead of incremental sales generated by the marketing effort as measured via A/B tests. His model resulted in some of the worst targeting tactics I've seen ... regardless, he was arguing with the vendor rep who had a model with more than a thousand variables.

The two of them consumed 90 minutes of Executive Time arguing meaningless points. Both sides were pigheaded, unwilling to listen, unwilling to accept criticism, unwilling to change. 

Both sides were very willing to argue loudly.

If you ever want to test your vendor to see if they know what they are doing, ask them how many variables are in the model they built for you. If they tell you that they've got 449 variables in the model, go find a vendor who will build something more parsimonious for you.

How did the meeting end?

The CFO finally cleared the room and asked me to give him my unvarnished opinion of the two parties. I told the CFO that the in-house modeler didn't understand marketing incrementality thereby costing the company a fortune ... and I told the CFO that the vendor didn't understand statistical models. I told the CFO to not trust either party.

That answer didn't go over well ... at that point I became a problem for saying that.

The CFO getting grumpy with me for sharing the "unvarnished truth" comes with the territory of being a consultant.

Parsimony and Incrementality are really important. You don't have to understand either in a lot of detail if you outsource your modeling efforts. You just need to be able to ask the modeler valid questions and then be ready to properly direct their efforts when they violate either concept.

You (Kevin) Are Sorely Mistaken

In the "before times" I spoke at a conference. You might remember those days ... no masks, people shaking hands right and left, buffet lines serving lunch, a shared experience.

My job was to deliver a thesis ... that our future was digitally oriented and that we'd have to almost have a brand-marketing focus (which sounds contrary to what you currently hear but how the heck is anybody going to want to consume your content unless your "brand" stands for something?) requiring different staffing, different talent, and a different approach. At the time, I'd likely analyzed 10,000,000,000ish purchase transactions, and I saw how e-commerce brands approached commerce vs. old-school brands. There was a path to the future, and it wasn't a terribly hard path to follow.

So I finish my presentation, and a professional asks me to talk to him out in the hallway, away from people. Here was his quote:

• "I realize you've analyzed ten billion purchase transactions, but it is my job to sell paper, and if you think I'm going to stop feeding my family so that your vision of the future comes true you are sorely mistaken, Kevin."

Can't blame the guy for saying that. It was his job to sell paper.

But realize that the position he takes requires you, the Business Leader, to filter misinformation. Somebody who says that to me in private is going to say something to you in public, and you won't know if the person is being honest or is making sure that he continues to feed his family.

In 2022, you're going to see a continuation of marketing misinformation. Be strong. Do what is right for your business, so that you can keep feeding your family.

Wired Headphones

According to the NY Times, they're "hot" right now (click here).

Data isn't cited to support the thesis. In these articles, whether it is LPs or the resurgence of catalogs, you don't see data cited ... there is the obligatory reference to Millennials or Gen-Z or Tik-Tok users, obviously, but not data.

I realize we seem to crave things that happened in the past, and we want them to "come back". Which, obviously, isn't how the world works.

Make 2022 your year of "Experimentation". Try different things. Learn as much as you can. 2020-2021 were years of just trying to survive. In 2022, figure out a path to the future, not a path tethered to the past.

You can do this!

P.S.: If you live anywhere between Colorado and Western Wisconsin you experienced an incredible storm on Wednesday. What's interesting is that even though this style of weather (typical for April or May) hasn't ever really happened in the past four decades in December, the computer models were able to decipher it days ahead of time and accurately forecast what was coming. As we head into 2022, I'm being asked to forecast what the next few years might look like for some of you. Every one of you has somebody at your company who forecasts the future. This is one of the most important jobs in your company. There's no reason why a lot of you couldn't become "that person". It's a good job to have, and you get to interact a lot with Management, learning how business works. 

Squeezing More Juice From The Lemon

Speaking of reader emails, here's a recent quote:

• "I know you care about new customers, but it makes more sense to squeeze more juice out of the lemon, if you know what I mean. I'd rather get a $200 a year customer to spend $300 a year than find a new and unproven customer while costing my company profitability."

Well, that sounds seductive.

But if you knew how to "squeeze more juice out of the lemon", wouldn't you already be doing that?

It is terribly hard (pre-inflation) to get customers to spend more. Look at your historical metrics, you'll see just how hard it is.

I realize 80% of you disagree with me here, but again, if you could squeeze more juice of out the lemon you'd have already done that. Meanwhile, I'll go find new customers and let 10% of the new customers become loyal and then those newbies will delivery a ton of profit for the companies I support.

I mean seriously, how many of you saw your sales increase by 50% during COVID? And you looked at your existing customer metrics and you maybe got 10% more spend from your existing customers but you ramped up newbies (without even doing anything special to make it happen) and your sales went bonkers.

That happened to most of you.

So why must you fight me on this topic? You have the data, you know the truth, now go do something about it!!!!!!

Personalization

A reader asked me the following question:

• "Surely personalization works, right? I mean, it just makes logical sense to put the right message in front of the right customer at the right time. You must have some data that proves that personalization works. Can you share it?"

Here's what we know.

Personalized messaging is a hit-or-miss proposition. Messaging is a hit-or-miss proposition. Anybody who analyzes A/B tests on your website knows that outcomes are generally inconsistent. Clients who have brilliant brand marketers and/or copywriters tend to have a messaging advantage. Clients who rely upon data tend to have a messaging disadvantage. Clients who test different tactics with brilliant brand marketers and/or copywriters tend to have a messaging advantage.

Personalized merchandising (this is very different than personalized messaging) is nearly guaranteed to work. Across my client base, you'll see gains of anywhere between 10% and 50% in conversion rates, with home page merchandise personalization, landing page merchandise personalization, and email merchandise personalization leading the way.

If you have to choose, always choose merchandise personalization. Putting widgets in front of some customers and putting bidgets in front of other customers based on predicted future behavior works, plain and simple.

Reader Email

I've spent time in the past two months talking more than usual about old-school catalog marketing ... an example can be found here, for instance.

The collapse of the catalog vendor ecosystem (no paper, printer staffing shortages, USPS unable to actually deliver catalogs in a timely manner, agencies lying and saying all is good, industry lobbying groups failing to help) caused an e-commerce leader to send me the following message, paraphrased to protect the innocent.

• "Why are you still talking about catalog brands? It can't be good for your readership metrics. Based on my experience with catalog marketers, they'd rather go down with the ship than change. They don't care that their vendor support ecosystem is collapsing."

You tell me.

Is the author of the quote correct? If the author of the quote is wrong, describe why.

Let me know your thoughts (kevinh@minethatdata.com).

Mailing It!

Hat tip to Twitter user Sean Marotta for alerting us of a new podcast from the USPS, called "mailin' it!"

Since they're encouraging a lighthearted look into the inner workings of the United States Postal Service, maybe there will be an episode that covers the fact that five years ago traditional catalogers could get 95% of their catalogs delivered within a three-day window and today fewer than 90% of catalogs are being delivered within a thirty-day window. I think the catalog audience would appreciate hearing about how that happened.

My catalog readers have suffered through a complete meltdown of the vendor ecosystem.

• USPS cannot reliably deliver catalogs anymore.
• Paper reps cannot source enough paper.
• Printers suffering from labor shortages.
• Agencies responding by paying PR firms to get articles published saying "Catalogs Are Back!!"
• Co-Ops funneling cataloger data into the social ecosystem for resale.
• Minimal help from the ACMA, an organization that lobbies DC on catalog issues ... they're utterly silent on the topic most important right now ... simply getting something delivered to a mailbox.

Next year, catalogers need to do two things.

1. Organize and demand accountability from a vendor community that completely failed catalogers in 2021. If you don't demand accountability, the vendor community will continue to run roughshod all over you going forward.
2. Test the living daylights out of digital marketing and brand marketing tactics in 2022, given the current catalog support ecosystem is in free fall. You need a path out of the current predicament ... and guess what? E-commerce brands have been untethered from your problems for 20 years already!

Keep An Eye Out For This

One of the challenges of late 2021 is product availability. Some of you had a hard time sourcing enough new merchandise compared to prior years.

I've spent more than eight years running Merchandise Forensics projects for many of you. It's a common theme in my projects that if you don't have enough new merchandise today, you'll have an existing merchandise issue tomorrow.

Some of you are putting the finishing touches on planning sales levels for 2022. Keep an eye out for this issue. It's an issue that costs many of my clients two years of subsequent sales challenges.

Customer Value

Here's a common scenario:

1. An organically acquired customer costs you $0.00 profit and generates $40.00 in the future, for a net of $40.00 profit.
2. A relationship-centric customer (acquired via email or print or events) might cost you $10.00 to acquire while generating $35.00 in the future, for a net of $25.00 profit.
3. A transaction-centric customer (acquired via Amazon or Google or Facebook or any Marketplace) might cost you $3.00 of profit while generating $15.00 in the future, for a net of $12.00 profit.

So you're dealing with either $40.00 of long-term profit, $25.00 of long-term profit, or $12.00 of long-term profit.

The instinct of many marketers is to ignore the $12.00 of long-term profit, because those customers are worth less-than-half of what everybody else is worth. Go out on LinkedIn and listen to the experts, they'll tell ya.

As we move into 2022, we're all dealing with separate businesses all folded together into one "brand". The relationship experts on LinkedIn will tell you to avoid the transaction-centric customer. It's one of their arguments to keep throwing catalogs in the mail even when you don't have enough paper to do just that. And they're partially right ... you'll generate more profit going after the relationship-centric customer.

But there's nothing wrong with building a business that caters to a transaction-centric customer, especially if you can generate enough long-term profit to make the math work. Do your Customer Value work, and see what the math tells you.

A Few Weeks Old, But Still Worth A Read

For those of you who like to theorize about Amazon stores, give this series of tweets a read (click here).

Simple Stats

You sell an item for $50.00 and the cost of goods is $20.00.

Now you are winding down your Christmas shopping season and you want to push more of this item, an item you've been selling at full price.

Say you want that item to sell for 30% off. That means the customer is buying the item for $35.00. Instead of making $30.00 of gross margin magic, you're making $15.00 of gross margin magic.

This means you have to sell twice as many items at $35.00 to make up for what you lose by not selling the item at $50.00.

If you have experiment-based data that tells you that units double when you are at 30% off, have at it!

Simple statistics and some math help you make reasonable decisions.

Speaking of Pickleball

During the winter months, I play in what is called a "Ladder". The players are rank-ordered from 1 to 180, and those who sign up to play are placed into groups of four. The group of four plays three games up to 15, with each player playing a game with the three other players. The player with the most points climbs the ladder, and moves up to the bottom of the group above him/her. The player with the fewest points falls down the ladder, moving to the top of the group below him/her.

Needless to say, these are spicy matchups.

Two weeks ago I trailed 4-0 in the first game (game is up to 15), I trailed 5-0 in the second game, and I trailed 6-0 in the third game.

In each case, my partner and I rallied to either win each game or get to 14 points (in the first game).

In total, I scored 44 points, enough to win the ladder.

Why bring up this topic?

I spoke with a CEO recently. The CEO told me that they tried a digital tactic, and the digital tactic "didn't work", so they stopped leveraging the tactic and they never looked back.

Here's my point:  Did the CEO stop leveraging the digital tactic when she was behind 6-0 (in pickleball parlance)? Because if that's what she did, she didn't give the tactic a chance to grow, develop, and ultimately succeed.

Don't give up too soon.

The Most Interesting Mail/Holdout Test I Was Ever Part Of

Ok, the company executing the catalog mail/holdout test had their own Visa Card. And in an interesting turn of fate, the Credit Division decided to help out with the results of the analysis. They promised to match all orders across all retailers to the customers involved in a catalog mail/holdout test.

In other words, this company could see if the catalog drove sales to competitors, or if the catalog cannibalized (stole) sales from competitors.

What was the most interesting finding?

• For every four dollars ($4) of incremental sales driven by the catalog, another six dollars ($6) of incremental sales were driven to Amazon.

Yeah, Amazon! In other words, the catalog was so effective it drove customers away from the brand to buy stuff on Amazon.

Omnichannel!!

People didn't believe the results (of course), so orders by day were matched to the mail/holdout groups and we saw that the Amazon order curve looked like the catalog order curve. Sure enough, the catalog pushed people to Amazon.

Needless to say, that was one defeated group of Executives when they saw the results of the test.

Imagine working so hard on your catalog that you drive more business to Amazon than you drive to your own brand?

Playing The Odds

When I read Scarne on Cards, I was thrilled with the discussion of probability/odds.

Studying this data in the 1970s suited me well for what we deal with today.

Take Cyber Monday newbies, for instance. You just acquired a boatload of newbies on Monday. Have you run the probability of a purchase from these customers after Cyber Monday? Do it! Perform the analysis. You're likely to see that you now have four weeks to convert those customers before you begin the long and sluggish process of losing the customer (while losing money trying to convert the customer).

Know the odds of various customer segments converting to a subsequent purchase.

P.S.: I just analyzed a business where 35% of Cyber Monday buyers who will repurchase do so within four weeks, with 42% repurchasing within eight weeks. After that? The customer dies off until the following Black Friday / Cyber Monday window. Know your odds and act appropriately.

The House

The House. In gambling, it's the facility that makes all of the money. They set the rules, and if you choose to play by their rules you'll ultimately lose.

In e-commerce, the house is Amazon, eBay, Etsy, Walmart, Shopify, Google, Facebook, just about anybody who you pay a tax to in order to have access to customers.

In late-stage catalog marketing, you pay a tax to the USPS, to your paper rep, to your printer, to your boutique agency, to the consultant broadcasting on LinkedIn with demands that you keep mailing catalogs even though the house doesn't have enough paper to allow you to play the game you've always played.

Think about how retail is changing ... the folks who were "the house" (malls / landlords) lost a lot of power in the past decade. After lousy malls are razed, the good locations are going to earn a lot of power over the next five years.

Your business has three elements that determine how profitable your merchandising efforts are.

1. Organic Sales ... customer buys from you without the aid of marketing because the customer loves you.
2. Relationship Sales ... customer buys from you because of relationship marketing efforts including catalogs, email marketing, loyalty programs, and events.
3. Transactional Sales ... customer buys from you because the customer has a need at a point in time and third parties connect the customer to you.

"The house" earns the rake from 2/3 above. Most of your profit should come from (1).

You make much of your profit on "1" above.

Where possible, you want to avoid 2/3 and focus on "1". I know, I know, that's really hard to do. But the alternative is to listen to the house. Their advice could help you, but will likely help them more.

Scarne on Cards

I'm not sure why my parents bought me a card book written by a gambling maven with connections to the mob, but the 70s were crazy times.

I still own the book. You can buy a used copy here. The writing style is not terribly different than that of Don Libey, for those of you who remember Mr. Libey. That statement alone should indicate to you what you (the reader) gets by reading the book.

I still vividly remember a key lesson taught in the book. The author spoke of the cut the house gets in poker (and honestly, in any game). The author described a situation (paraphrased here) where five players are sitting at a table with $100 each, and at the end of a hand the house gets a "rake" ... say 4%. In other words, the players bet, and at the end of the hand the pot is $50 so the house gets $50*0.04 = $2.

Pretend you play 100 hands.

100 hands times $2 per hand = $200 that goes to the house.

In other words, the five players start with $500 total ($100 each) and at the end of 100 hands the house gets $200 and the players are left with $300, divided five ways, about $60 each. Each player is down $40 from the start of the game.

The author described that the only way for the player to solve the problem was two-fold.

1. Recruit new talent - bring new money into the game.
2. Recruit talent with lesser skills.

Why am I bringing this topic up?

Well, modern marketing is all about "the house". Somebody controls the market, and for you to play in the market you have to pay the house a "rake".

More on the topic tomorrow.

Make Sure You Measure It

You measure the future value of Black Friday and Cyber Monday customers, right?

Right?

As long as you are going to burn all of these discount/promo dollars, at least measure what you get long-term for your efforts ... and measure it down to profit. Ok? Heck, you might find out that this is the best time to acquire a customer. Or not. But at least you'll know.

More Articles

You start to see a trend, and you wonder if the trend is real, or if the trend is astroturfed.

See if you can identify common themes in these articles, or common quotes from the same people, or the same people being referenced repeatedly.

• Catalogs Fill A Retail Therapy Niche.
• Why Catalogs Are Still Winning Holiday Marketing.
• Direct Marketing For The Direct To Consumer Brand.
• All Hail The Return Of Catalogs.
• Six Essential Strategies To Make Your Catalogs Stand Out.
• Retailers Rethink Holiday Ads Amid Digital Marketing Upheaval.
• Why Catalogs Are Still Winning Christmas Marketing.
• How Retailers Are Re-Thinking This Holiday Marketing Approach.

Read the articles and jot down on a piece of paper the individuals cited in the articles.

You'll quickly be forced to confront the fact that somebody hired a PR firm to spread a message at a time when the catalog industry has never been on more unstable footing (and that is saying something, dear readers).

And the PR firm is really good at getting articles published. This trend is, obviously, astroturfed. And if I worked at an agency responsible for catalog marketing, I'd be working my rear end off to get as much exposure as possible right now - you can't blame folks for hustling.

We are required to be honest. I realize that's not a popular position in 2021, the best practice is to lie and mislead and earn clicks and mindshare and all of that. Look at politics and discussions about a pandemic for a starting point on this topic. 

What has happened in the past fifteen or twenty years?

• Digital Ad Spend continues to grow at a mind-boggling rate (click here). Meanwhile, Catalog Ad Spend is about 1/20th or less (yeah, that's right) of digital ad spend (click here).
• Can I state this again? For every dollar spend mailing a catalog, between $20 and $25 are spent on digital marketing.
• I know, I know, you'll debate that the sources aren't appropriate. Fine. Go get your own sources, and tell me that the ratio isn't $1 in catalog to $20 in digital.
• Mills have been closing for the past fifteen years, greatly constraining paper supply. Mills have not been closing because catalog marketing is making a comeback. Mills close when demand is contracting.
• The pandemic ... not actual merchandising and marketing brilliance ... taught customers to buy online, often out of necessity for a period of time. As a result, catalog-centric brands saw an increase in the number of twelve-month buyers.
• The increase in twelve-month buyers means that catalog brands asked for more paper in 2021 and 2022 ... at the very time when supply had been constrained too much (oops). Less capacity paired with more names to mail created a paper shortage.
• The logical response to a paper shortage is not to let your Widgets sit in a warehouse, but to find a marketing alternative to move the Widgets out of the warehouse. This is where "digital" comes into play. "Digital" terrifies the catalog vendor community. I was in the meetings at Eddie Bauer in 1998 when e-commerce exploded and you could feel the tangible concern for a catalog career path. That was 1998. Those concerns never went away, and for good reason. I experienced how catalog professionals reacted when we shut down a $160,000,000 net sales catalog division in 2005-2006 and instead saw a net sales gain the year after. Even as sales INCREASED, catalog professionals were very uncomfortable. Very uncomfortable. Can't blame them, either.
• Notice that the articles attack Apple and Facebook. It's their fault, and the response is to go back 20 years in history for a solution. Wrong. If a digital marketer is dependent upon Apple, Facebook, and Google ... then the digital marketer is "doing it wrong". The best digital marketers do not depend upon 1-3 platforms. The best digital marketers understand the creative and merchandising processes in the digital realm, regardless of platform.

Notice that the articles really hammer home the retail side of catalog marketing. This is for good reason, because the metrics on the retail side are shoddy. It's easy to convince the Executive Vice President of Global Brand Direction to make a fashion statement with a catalog. It's hard to convince the CFO at a catalog brand that catalogs are making a comeback, because the CFO has evidence that says otherwise. We're coming out of the pandemic and many housefiles are starting to contract. CFOs and CMOs at catalog brands understand what is really happening. Talk to them.

Should you dive into catalogs and help the channel make a comeback? If the metrics say yes, why the heck not??!!

Make sure you are looking at comparable metrics, of course.

Ignore matchbacks - that's pseudo-science designed to lie to you about the real impact of print. Use your mail/holdout test results to understand incrementality - and if you aren't comfortable giving up sales from 25,000 customers for six months via a holdout group, well, then you shouldn't be comfortable with your paper rep & printer canceling your January catalog altogether or shrinking your contracted circ by 100,000, right?

Let's say you mail a catalog to an average twelve-month buyer. During the month the catalog is mailed, customers who received the catalog spend $10.00. Those who are in a holdout group spend $6.00. Your organic percentage is 60%, your catalog drove $4.00 of incremental sales. Not a bad result.

• $10.00 customer spend.
• $6.00 would have happened anyway.
• $4.00 is incremental.
• 35% of sales flow-through to profit.
• Catalog cost is $0.75.
• Profit = $4.00 * 0.35 - $0.75 = $0.65.

Now, you also execute mail/holdout results for email marketing, right? You send five campaigns a week, you generate $0.12 per mailing, and 60% of sales are organic and would have happened anyway.

• $0.12*5*4 = $2.40 customer spend.
• 60% would have happened anyway, meaning $0.96 is incremental.
• 35% of sales flow-through to profit.
• $0.002 is the cost per email delivered, or $0.04 per month.
• Profit = $0.96*0.35-$0.02 = $0.30.

If that's your result, then yes, catalogs are generating a better return ($0.65 vs. $0.30) than email marketing. You are winning - and go ahead and mail some catalogs and have fun. Notice, however, that the math illustrated above is never cited in articles. That should cause consternation on your end. Why won't anybody ever share favorable math with you via mail/holdout results?

Do the real math. Execute the tests ... both for catalogs and for email marketing.

Do not focus on astroturfed trends generated by smart PR firms being paid to get articles published.

Focus on performing an analysis that proves whether something is making a comeback, holds ground, or is in decline.

Does that make sense? Believe your metrics, not what you read.

P.S.: I'm ok with the authors and those who were interviewed and the PR folks promoting the content pushing their agenda. That's fine. I'm focused on you. Do the work. Make good choices based on facts.

Would You Rather Acquire a Customer on October 8 or Cyber Monday?

Obviously you probably want both customers.

But do you know the answer to that question?

In a recent project I was asked to determine, out of 365 days, where Cyber Monday ranked in terms of delivering good customers most likely to repurchase.

The answer?

349th out of 365.

October 8th?

33rd out of 365.

Your mileage will vary. So please, do the work. Answer the question for yourself - it's a 16 line piece of code when the data is formatted properly and you're using SPSS to conduct the analysis.

One of the reasons your customers aren't loyal is because you choose to purposely acquire customers at times when the customers who purchase are not likely to become loyal.

Article

Here's an story for those of you in the catalog audience (click here).

Send me an email (kevinh@minethatdata.com) and tell me what you think of this article. Offer your pros and cons.

P.S.: Here's another article for readers with an affinity for retail. My goodness.

Adele

It looks like 10,000,000(ish) watched the Oprah/Adele show on Sunday night.

Network television enthusiasts signaled to their audience that "... broadcast TV can still perform mightily, when harnessed correctly."

Oh boy.

Oh boy.

Let's start by stating the obvious ... 3.03% of the population of the United States watched this episode. For every person who watched this, 32 didn't ... didn't watch it! By way of comparison, an average episode of Alice on CBS would have drawn in 30,000,000 viewers in 1979, as fans waited to hear the phrase "Kiss My Grits".

Pundits like to use phrases like "harnessed" ... as if the dying medium is so darn powerful that the idiots that use it aren't capable of using it properly.

Network Television is not coming back. There isn't a renaissance. No comeback. It's over. There will be moments when Oprah/Adele team up and create two hours to celebrate, sure. But it is over.

The same concepts apply to marketing tactics. There are times when industry experts will point to a tactic as an example of a tactic that is "being harnessed correctly". Industry experts will gather on an online forum and celebrate the "Oprah/Adele" example in their industry, clinking digital champagne glasses that their preferred tactic is "back".

It's not back.

All that being said, there's nothing wrong with celebrating success. You can hold two conflicting concepts in your mind at the same time ... it is possible that a dying medium provides a success story while at the same time revealing itself as a dying medium. Just don't confuse the former and the latter.

4th Down

If you watch an NFL game (and even college games now) you'll notice that something has changed.

Teams that would have punted or kicked field goals on 4th down are now more likely than previous to go for it.

Your odds of winning go up when you go for it on 4th and goal at the two yard line vs. kicking a field goal, for instance.

When you are successful, you look good and you score more points.

When you are unsuccessful, you are second-guessed, you are less likely to win, and you made an unconventional decision that might cause you to lose your job.

So it is with marketing.

It is safe to execute the way you've always executed, even when conditions have radically changed and you can't execute the way you've always executed. You won't lose your job, but you won't maximize your profit opportunity either.

But if you take a risk ... you might have big success or you might look like a fool and lose your job and have the punditocracy mock you.

In the NFL the new generation of coaches are much more likely to go for it on 4th down.

And in marketing, tomorrow's leaders are going to be much more likely to execute differently. Market conditions are requiring it.

Inflation

So in 2019 you sold a Widget for $49.99 at a cost of goods of $19.99.

And now that Widget costs you $26.99.

You have choices.

• Sell the Widget for $49.99 and instead of earning $30.00 of gross margin you earn $23.00. Your CFO doesn't like this idea.
• Sell the Widget for $56.99 and you earn $30.00 of gross margin but you see a reduction in annual rebuy rates and a reduction in number of new/reactivated buyers.

Neither solution is good.

But this is where we are headed.

Each "brand" has a different relationship. 

• Some companies can raise prices and maintain rebuy rates. Those are well-managed companies.
• Some companies raise prices, which causes reductions in rebuy rates and orders per buyer and items per order but the price increase offsets the reductions. This is a common outcome.
• Some companies raise prices but the reductions in rebuy rates and orders per buyer and items per order yield a net "zero" gain. This is a common outcome, and it is an awful outcome.

Your job is to measure these relationships and know the EXACT answer to what happens as cost of goods increase. You need to measure this stuff, folks. You have no choice.

Inflation likely looks like an issue we won't shake in 2022.

Paper Update

The feedback is coming in from many directions now.

Those of you who market via paper are not going to get what you need for some time. This means if you want to stay in business, you need to move away from paper. The vast majority of e-commerce brands don't leverage paper, and somehow they do just fine.

It's common to see the following scenario.

• $30,000,000 business.
• $15,000,000 from existing customers.
• Brand spends $3,000,000 on paper marketing to these customers.
• Mail/Holdout tests show that 60% of sales is organic, 40% driven by paper.
• Therefore, $6,000,000 of sales come in via paper.
• 40% of sales flow-through to profit.

The secret is to know your "organic percentage", measured via mail/holdout tests.

This is the part of the discussion where the reader emails me and says "we can't perform mail/holdout tests because we'll lose sales".

This is the part of the discussion where I'll remind you that your paper reps and printers aren't giving you the paper you contractually agreed to and you will most certainly lose a ton of  sales. Why do you get mad at me about holding out 25,000 customers when your paper partners are canceling 500,000 in circ? Why don't you get mad at them? Be honest, ok?

If you know your organic percentage, you'll create a table like the one below that shows how much you should spend on print to generate optimal levels of profit.

This company is actually losing profit on what they currently execute ... they generate $6 million in actual print-driven sales (as measured via mail/holdout tests) on a budget of $3 million, losing $0.6 million in the process.

A better strategy might be to spend between $500,000 and $1,000,000, reducing the top-line by about $3.0 million but adding about $1.0 million in profit.

I know, you don't want the top-line to slump. Don't yell at me about that ... yell at your paper rep and printer. They're the ones who put you in a bind that now requires you to contact me.

If you want me to take a look at the ad spend / profit relationship, send me an email (kevinh@minethatdata.com), one that includes your housefile print ad spend, your housefile generated sales via matchbacks, and your organic percentage measured via mail/holdout tests. I'll plug the data into my algorithm and share the table above with you. No cost. Is your printer doing that for you? 

Then when you need to score the file to know who to not send paper to, you'll hire me to generate the equations for you, ok?

Surely You Believe ...

Speaking of Pickleball, I'm standing outside of Court 3 and a fellow player is asking about my business. I describe the type of projects I'm working on late in 2021 (Hillstrom's Newbies). 

This is the moment when the player asks a question I hear all of the time.

• "Surely you believe that the smartest play is to focus on Customer Loyalty. Given the choice between getting more profit from your most loyal buyers and spending money finding a new customer, you must focus on Loyalty. Right?"

Loyalty is a belief. There are marketers and the vendors who support marketers who strongly believe that you can take an ordinary customer and make the customer loyal ... or you can take a loyal customer and keep the customer in a status of loyalty.

The data I analyze shows that there is a serious "attribution issue" when it comes to loyalty.

In other words, customers have a natural rhythm. There might be 1,000 loyal customers and 700 will remain loyal in the next year and the marketer executes a program that causes 720 customers to remain loyal (net increase of 20 customers) but the marketer takes credit for 700 customers staying loyal and says that their tactics "work".

The marketer is wrong.

Now, moving the needle from 700 customers to 720 customers is HARD WORK and the marketer deserves credit for doing the hard work.

But taking credit for 720 customers (which I see happen every day)?

Surely you believe that isn't right!

Podcast with Mage Montreal

If podcasts are your thing, then give this interview that I had with Mage Montreal a listen (click here). Lots of Customer Development goodness here.

A Seamless, Frictionless Omnichannel Experience

That's what the pundits tell us we have to do. That's all. Just be perfect across millions of transactions a week. 

Relentlessly perfect. Seamless. Frictionless. Omnichannel. The pundits use words like "table stakes" as they glowingly criticize everybody who isn't perfect.

So I go to the grocery store. In the parking lot I order pizza from the restaurant next door. Easy, quick, efficient. The omnichannel punditocracy clinks their champagne glasses, anticipating another delighted customer across online and retail.

My order will be ready between 7:15pm and 7:21pm, and I will receive a message when the order is ready.

7:15pm passes.

7:20pm passes.

7:25pm passes.

7:30pm passes.

I'm done grocery shopping, so I enter the store, where I am greeted by six customers waiting. 

There is a message.

The portals are down!!

Two exclamation points.

The omnichannel system has completely broken down. This isn't seamless, this isn't frictionless. But the problem can be solved. It will be up to the "cashier" to solve the problem.

Turns out there are a lot of customers waiting in the tiny lobby because the "cashier" isn't working as a "cashier" right now ... for the $11/hour she's being paid she is fighting for her life making pizzas, trying to take care of customers. She's hustling, she's scrappy, gritty, doing what she can.

Every few minutes she pops out with a pizza and barks out a name ... "TREVOR ... TREVOR??"

Then she keeps making pizzas, fighting again for her employment life at $11/hour.

There's now nine people crammed into the small lobby and the political comments are flying.

• "NOBODY WANTS TO WORK, THAT'S WHAT CAUSES THIS PROBLEM."
• "THE GOVERNMENT IS PAYING EVERYBODY TO SIT AT HOME, SO EVERYBODY HAS MONEY AND NOBODY IS WORKING AND EVERYBODY IS SPENDING GOVERNMENT MONEY. THAT'S WHAT WE'RE SEEING HERE, SHEEPLE."
• "WHERE IS MY FREE VETERANS DAY PIZZA?"

Meanwhile the "cashier" is absolutely battling. Balling. She's trying to save the entire omnichannel thesis on her own. She asks my name. She goes back, comes back out and says "we're almost done!". I don't believe her for a moment.

I should have surmised that maybe there was a good chance that the "wrong" pies were being moved in and out, because when she asks the other two employees where my pizzas are the other two employees look at her like she has candy canes coming out of her ears. She barks at her co-workers ... "THE SYSTEM SAYS HIS PIZZAS ARE READY". The co-workers look at each other again, realize that the "cashier" needs to see two pizzas immediately, and they grab two boxes and yell "KEVIN".

I should have said something, but I was worried about the two marinara sauces that were not being handed to me. One of the co-workers addresses me ... "THIS IS A REALLY ROUGH NIGHT", goes back, and gets me two marinara sauces.

Nearly a half-hour late and relieved to have two pizzas while avoiding an angry mob of customers frustrated with free government money, I drive home.

Mistake.

When I get home, I have two pizzas that have nothing to do with me. And I should have known this because I saw the chaos exhibited by the co-workers who were being barked at by the "cashier". I could tell by their faces that they were just randomly making pizzas to get them out the door. "HE'LL LOVE PEPPERONI!".

It all starts with this:

Seamless.

Frictionless.

Omnichannel.

Tomorrow the Store Manager will explain to the Regional Manager what the heck happened on Thursday night. The Store Manager will keep her job because there is a labor shortage.

The Regional Manager will explain to the Vice President of Stores what happened at Store 2826 last night. The Vice President of Stores will compare notes across 173 different stores that all had the same problem with the "portal". Maybe it was an IT problem. Maybe the vendor who sold the solution sold the pizza brand a piece of junk. Maybe the "cashier" botched operation of the portal.

The VP of Stores will tell the Executive Team that this was an "anomaly". The "Omnichannel Services" team will deal with 12,577 angry customers, like they do every day, apologize, and offer 15% off on the next visit.

Then everybody will face Friday. It will be Groundhog Day.

Retail is not seamless. It is not frictionless. It's warfare. The best retailers hide how the sausage pizza is made, hide all of the challenges, and somehow repeatedly get through the day pleasing as many customers as possible. The employees who hide all of the problem do so earning less than what is required to make a reasonable living. The omnichannel solutions that cause problems are offered by folks making enough money to live in a cul-de-sac where homes appreciated 33% in the past two years. 

The pundits demanding that you execute in a perfect manner every single time? They need to obtain some empathy. The employees they demand perfection from are fighting an uphill battle every single day, sometimes caused by the vendors selling solutions that promise a seamless, frictionless omnichannel experience.

P.S.: I received an email that my order was ready ... about five minutes after I left the store, 26 minutes after the time-window I was promised. Omnichannel!!