- "Can you share examples with me of stuff that works?"
- "I'm sorry, that won't work for us. What else do you have?"
This was in last week's Hello Fresh shipment.
We've all seen it happen.
The new CEO comes in, and s/he has a vision. "We're gonna modernize this stale assortment, make it trend-right, relevant, engaging, immersive." The Executive offers us a word salad.
Within six months, the old merchandising team disappears ("We want to thank Rhonda for her contributions and encourage her as she pursues a future that includes spending more time with her family"). A new team is recruited, aligning with the vision of the new CEO.
I watched this happen at a company. Nine months later the new merchandise assortment was unleashed upon the customer base ... a customer base that shopped the old assortment. Response plummets. Conversion rates implode.
First of all, somebody failed to communicate to the company that when you change the merchandise assortment but don't change the customer base you will see a productivity decline. Customer Development grinds. New Customer Acquisition fails. Your Welcome Program stops working. Even your Loyalty program slumps. All of this should have been expected and baked into your financial plan for the year. Your CFO should have known that the top-line would slump by 15% and should have protected your brand for the next few years.
But that seldom happens.
So the blame begins. A merchant will lop off the heads of the marketing team ... "they're targeting the wrong customer". An operations guru will suggest that the creative team has "no idea". The data scientist will point out that customer response to old items is just fine but is off 40% for new items ... and nobody will listen.
Then the discounting starts. There's an inventory problem, and the only way out of the problem is to offer 40% off everything. Even the stuff that is selling well.
The data scientist points out that the twelve-month buyer file is now 17% weaker and that means that even when the merchandise problem is figured out there will be a sales hit because there aren't enough good customers now. Somebody in marketing will respond to this tidbit by deciding to create a new loyalty program. Somebody in finance will nuke the program by saying that the brand cannot give up more margin dollars. They'll say this at the exact moment when finance approves continuation of 40% off to unload bloated inventory levels.
The Chief Marketing Officer is fired. "We need fresh ideas that align with the new direction of our brand." Uh huh.
The new CMO comes in, fires the agency that marketing was working with, and starts over. The new direction the CMO takes the brand in causes customers to become confused, and consequently, less responsive.
Thirty months later the Board of Directors (or the Owner) are fed up. The CEO is fired, Many EVP-level Executives are sent packing. The brand starts over. A new CEO and a new Chief Merchant are brought in to restore the "heritage" of the brand. Even if this is the right decision, the customer file has been transformed, now a mix of older customers who "hung in there" and newer customers who liked the new direction of the brand. The latter audience isn't going to take kindly to "going back to the future".
If this sounds familiar (and it should), then you might be asking yourself "how do we escape this cycle?"
Customer Development is dependent upon whether you sink into this cycle or not. The NY Jets (in the NFL) are stuck in this cycle, and it is hard to Develop a Customer base when you are stuck in this cycle.
There's a reason College Football and College Basketball coaches are given five year contracts. It takes five years to move the existing players out (the "merchandise" if you will) and move new players in.
Merchandising Strategy ALWAYS causes Customer Development problems. Always. When major changes are forthcoming, it is the job of the Chief Performance Officer at your company to set expectations for every employee. By setting low expectations, Leadership does not panic when results do not meet expectations (because you already set low expectations, so you are on plan).
A pickleball obsessed Customer Development professional needs the right tools to do the job. The most important tool, of course, is the paddle.
Six weeks later, I get an email from the seller.
Did something happen with my credit card?
Is the product defective? No. (only my ability to play the game is defective).
Turns out the seller wanted me to write a review of the product.
That's not an "unexpected problem completing my order". That's a request on behalf of the vendor.
That's also not a Customer Development strategy.
Every three to twelve months I'm going to need a new paddle. They have a customer for a long, long time if they choose to Develop me. Instead, they tried to Use me to help them acquire new customers.
Develop a Customer?
Or Use a Customer?
P.S.: If your customer buys infrequently, the strategy outlined above works from a business standpoint. Not from a Customer Development standpoint, but a well written review of the merchandise can lure new customers into the fold. There is a place for it. It's just not a Customer Development strategy.
This (amazingly) is now more than fifteen years ago. I've spoken about this often, but seldom in the context of Customer Development.
At Nordstrom, we had our annual Anniversary Sale. From late July to early August, we discounted our new fall assortment by about 20%. We did Christmas-like business in mid-summer. When people talk glowingly about Amazon Prime Day, remember that Amazon largely copied the playbook of Nordstrom.
My team was asked to pick an annual spending level that pre-qualified customers for special Anniversary Sale perks. My team did the work, and determined that $750 was the amount of annual spend that was hard to achieve yet worthy of being rewarded during Anniversary Sale. If the customer spent $750 in a twelve-month period of time, the customer would qualify for an invitation to enter the store a week before the event began. In this invitation, the customer could pre-select merchandise. The merchandise would be held for the customer. On the first day of the sale, the customer walked into the store, picked up the merchandise, and paid for it.
Did this tactic "develop" customers??
Oh my goodness did it develop customers!
We knew that, say, 15% of customers would spend $750 a year or more. The program caused a significant increase in the annual percentage of customers spending more than $750.
We knew that customers who bought during the Anniversary Sale would become even better customers in the future, after controlling for other factors. This Customer Development tactic caused the "invited" customers to spend (if I remember correctly) 17% more than comparable customers spent in prior years. You take a half-million customers and get them to spend $40 more than they'd normally spend and just like that you pocket $20,000,000 in additional sales and $5,000,000 more in annual profit.
But you have to have a compelling event. And an achievable spending level to get to. And you have to have "emotional perks". I worked in a store each year on the first day of the Anniversary Sale, and you should have seen how these customers strutted through the store to pick up their plunder while "the masses" fought for what was left.
I know, you're going to say that this was way back in 2005-2006 and therefore is not relevant in a modern "omnichannel" world. Fine. Then use your brilliance to come up with a modern "omnichannel" customer development event. You can do this!!!!
Most of you who are interested in European Soccer/Football were agitated to learn that twelve teams planned to break off from the other 680+ teams and create a Super League (click here).
Within two days the plan imploded as a small number of business leaders quickly realized that hundreds of millions of "customers" hated the idea while Managers of some of the teams came out in favor of the fans over Management.
In e-commerce terms, we know the following.
Consultants visit sprawling, modern corporate campuses (pre-COVID). Sometimes we stumble upon beautiful little gems. Other times? Well, you enter a run-down strip mall and your expectations for greatness are reduced. That assumption, my friends, would be a mistake.
This company was a Customer Development powerhouse!
They had unique products for prospects.
Special discounts if a customer purchased for the second time within a few days of receiving a first order.
Marketplace programs with products that cannot be bought via the website.
A subscription-based replenishment program.
A loyalty program with unique product bundles.
Special surprise perks for the absolute best customers.
Customer metrics that you would die for.
In other words, this company was brilliant at Customer Development.
You, too, can be brilliant at Customer Development. As we emerge from COVID into a somewhat vaccinated world, many of you will have an absolute glut of customers that you need to develop. Do not let these customers lapse into oblivion!!
One of the "trick" questions I'm asked is this ... "Who does Customer Development well, and what specifically are they doing to develop customers?"
Why is this a "trick" question? Because of the response I get after I answer the question. After I give a response, I'm frequently told that the answer is a "bad example" or is "not applicable". It's the way that many Professionals make sure that they don't have to change anything ... all they have to do is point out a small flaw in an idea and feel superior.
Sports is a place that develops both customers and merchandise. Sports does this way better than e-commerce does.
In baseball, you have a feeder system of Rookie Ball, Class A (low and high), Class AA, Class AAA, and then the Major Leagues. Aside from the fact that MLB exploits the athletes, paying them at or below minimum wage levels for the hours they put in, the product/merchandise is developed so that by the time the players are at the Major League level, they perform at a HIGH level, causing their play to (theoretically) be more entertaining, causing more fans to want to attend, causing fans to be developed.
NASCAR has a similar system ... Trucks / Xfinity Series / Cup Series. Drivers and teams are developed, so that they are able to perform at a high level when they get to the Cup Series. Fans are developed as well. Why travel to a track to see one race when you could see 2-3 races on any given weekend? NASCAR benefits from the additional fans by generating $40ish additional dollars from 10,000 of the die-hard / most-developed fans.
I know, I know, you're going to tell me that this doesn't matter ... that those are event-based industries and you are selling in an omnichannel manner 24/7/365.
But why can't you incorporate event-based activities into your tactics? Why can't you do that? And why can't you develop merchandise around those events and develop customers as a consequence?
Why not you?
It's always interesting to hear Customer Development feedback that comes from outside of the Marketing Department.
In one visit, the Information Technology person asked for a list of best practices that could be publicly verified. Sure. Companies love to publicly share their secrets of success. There aren't many articles titled "Here are the eight ways Burger King clobbered the competition, authored by Burger King."
In another visit, the analyst wanted to know if "AI" would be a key component of any solution? That's not a valid question. That's a buzzword embedded in a sentence. The person wouldn't understand what I meant if I said "what do you think of multi-layer perceptrons?" The person just wanted a box checked.
I was asked if solutions were "agile". Enough. Vendors telling you that you need to be quick and adaptive are one thing ... but of what good is it to provide an "agile" solution (whatever that means) that is quick, adaptive, and awful?
Customer Development is a deliberative, contemplative, thoughtful, tactical approach to growing customers from Acquisition to Welcome to Emergence to Loyalty. You don't cheat the process with "AI" or by being "agile". You do the hard work to put the right merchandise in front of the customer.
If a vendor or co-worker starts throwing buzzwords at you when you discuss Customer Development, please redirect the vendor or co-worker.
My plan3 (pre-COVID) lands minutes before a severe thunderstorm absolutely pummels the area. I sat the storm out in a Culver's Restaurant (pork tenderloin sandwich and cheese curds), browsing Customer Development notes for the meeting I would have the next day.
This company had a beautiful lobby. Heck, everything was perfect. And for good reason. This company was (and still is) thriving. I was hired to solve a Customer Development problem, a problem that didn't exist. Annual repurchase rates were north of 70%. Customers loved the retail experience so much that online penetration was sub-standard. This company wanted me to help the move customers from a wonderful in-store experience to an online experience.
The Marketing Executive sits me down, and then approaches the grease board.
With effect, he pulls out a black grease board sharpie and writes one word.
For effect, he underlines the word a few times.
There is a belief that if you just remove "friction" you'll convert customers and as a result you'll be great at Customer Development.
"Friction" becomes a math issue in Customer Development. Which customer would you prefer to have?
I'm sitting in on the Monday Morning Executive Meeting, on Cyber Monday.
Can I tell you a secret? I detest Cyber Monday.
Cyber Monday is a day where less-qualified professionals cheat at Customer Development. They slap 50% off promotions, watch the sales roll in (regardless whether the sales are profitable or unprofitable), and then battle for the next year as they wonder why so many customers won't purchase unless they're offered 50% off. If Customer Development is the realm of the gifted, Cyber Monday is the realm of the metrics manipulator.
You can tell if a company cares about Customer Development based on how the company behaves on Cyber Monday. As I sat in front of a room full of Executives earning an average of a half-million dollars a year, a meek woman walked into the room and approached the CEO with a slip of paper.
The room became quiet.
The CEO read the slip of paper.
Then the CEO said, "GET GAIL IN HERE".
It turns out that a competitor topped the 50% off promo this brand had for Cyber Monday by offering 55% off. The CEO would have none of this nonsense. None of it.
Poor Gail walks into the room a few seconds later, and was micromanaged into changing email creative within the next ten minutes before launching the promo to the masses. This brand would be at 55% off on Cyber Monday.
Clients that are excellent at Customer Development HAVE A PLAN. They don't act like a child who just ate a Snickers bar only to see another kid with a bag of Kit Kats. They don't deviate in the face of adversity. They persevere. They work hard on their plan. They're not intimidated. Instead, they Lead.
Your Cyber Monday plan tells all of us a lot about how good you are at Customer Development.
Consultants (pre-COVID) get to see a lot of corporate offices. The legendary Don Libey always said that you could judge a company by how well they maintained the bathroom. I'd argue you can judge a company by what the lobby looks like.
On one visit, the lobby looked awful. Worn out. Tired. A sixty-five year old woman named Paulette (not her name) guarded the company secrets from outsiders. Like at many companies, she determined who got in, and who wasn't so lucky. Though the lobby was warn out, it was littered with beautiful catalogs. Current catalogs, older catalogs. Pictures of catalogs from the 1990s on the wall. J. Peterman would have been proud. Clearly the company cared more about catalogs than infrastructure.
The infrastructure issue became obvious once Paulette gave me a laminated photo ID and allowed me to enter the building. It wasn't only the lobby that was run down. The merchandise was run down. Creative was run down. Everything was just laying in ruins. A consultant is hired to solve a specific problem, and the problem I was hired to solve wouldn't make a dent in the core issue. This company had a Customer Development problem, but the problem wasn't the problem the company thought it was.
I interviewed the marketing executive, the CEO, and the lead merchant.
All three told me something interesting. All three told me that they had an analyst, and the analyst created a "model", a model to determine who would receive the catalogs. They were all thrilled that this "model" would solve their business woes.
You can only imagine how wounded these professionals were when I told them that the "model" was irrelevant.
You can only imagine how wounded these professionals were when I sat down with the analyst and realized that the analyst didn't understand the very business he was "modeling". Why should he understand the business? Absolutely nobody was mentoring him, and quite honestly, he was too pigheaded to accept mentorship if offered.
Creative was broken.
Merchandise was broken.
The lobby was broken.
With so much broken, Leadership put their faith in an analyst who built a "model" to select customers for catalog mailings.
Customer Development is an integrated process. You need great merchandise. You need great creative. You need brilliant marketing. You need an operations team that is second to none. You need talent recruitment. You need employee development. You need to pay some people money.
What you don't need are AI or Machine Learning or a "model". Will that help? Of course. But you're looking at a small gain. And you haven't fixed anything.
The best Customer Development companies fix things. They fix run down lobbies. They fix merchandising issues. They fix creative issues. They get you your merchandise in two days. They do all of the little things.
I took twelve-month buyers who purchased exactly four times, historically. I built a model to predict how likely the customers were to purchase again next year. Twelve months later, I applied the same model to customers, based on their current status. Finally, I divided the "next year" prediction by the prediction "one year ago", giving me a performance index.
Below is a histogram of the performance index. Tell me what you observe.
There is a peak at about 0.60 ... meaning that one group of customers saw their chances of purchasing again slump by about 40%. These customers (obviously) did not purchase in the past year.
There is another peak, at about 1.20 ... meaning that another group of customers saw their chances of purchasing again increase by about 20%. These customers (obviously) purchased again the past year. Most of those customers became more valuable.
The average index for 4x buyers is (in this case) 0.89, meaning that on average this cohort of buyers saw their future chances of buying again slump by about 11%. The cohort (on average) becomes less valuable, with some customers becoming more valuable.
What was the index by 12 month buyer x frequency segment?
Who says I never do anything for you, the loyal Blog Subscriber?
If you are a Blog Subscriber, I will run a Customer Development Master Sheet for you at the insanely low cost of just $6,900 (click here for an example). You'll get to see how your Customer Development efforts stack up against a baseline of brands.
You obviously won't get the full set of benefits you get in a fully developed Customer Development project (click here), but that's life. You get something you will get from NOBODY ELSE. You'll learn if you have problems. You'll learn where you have problems.
You have one (1) week to take me up on this offer. In many cases, you have a boatload of customers from COVID that you may not be managing at peak effectiveness. Let's learn what your opportunity is, ok??
One week. Contact me (firstname.lastname@example.org). Click here for the file format (called File #1) you'll need to send me.
Here's the Master Sheet we've evaluated for more than a week.
Back to the Master Sheet.
Let's start with the Master Sheet.
Ok, it is time for the grand reveal!
There are five columns in the middle of the table, forming a heat map. Let's review each column.
When I review how well you perform at your Customer Development duties, I typically look at three key attributes.
Well, maybe. Here is our base case. Let's assume that we'll spend 20% more next year ... even though we proved in our last post that...