April 27, 2021

When Merchandise Caused Customer Development Problems

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.

Blame begins.

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.

Profit implodes.

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.

Five years.

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).

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