Soldout Items

I know, you've got a container of stuff that somebody charged you $10,000 to ship over here and then extorted you for another $6,000 and now that container is sitting off of Long Beach. Those widgets you've put in print for the October catalog are not going to be available, are they?

What happens when a customer buys something and you have to tell the customer the item is not available? Does this unfortunate incident impact future rebuy rates?

Yes. Yes it does.

Assume your customer has a 35% chance of buying again next year.

• If the customer ordered 1 item and it was backordered, it's likely the rebuy rate will stay near 35%.
• If the customer ordered 1 item and the item was ultimately canceled, the customer frequently has the desire to order a comparable item, driving up the rebuy rate (yes, this happens often).
• If the customer ordered 3 items and all three items were nuked in some way, the customer is ticked off and the rebuy rates goes down ... often considerably.

Work with your analyst to solve this riddle.

And if your analyst is overwhelmed with a lot of requests, email me (kevinh@minethatdata.com) and we'll get busy.

One Spot Left

Two spots for my New Customer Analysis have been taken, leaving us with one more at the introductory price of $11,500 ($16,000 for anybody thereafter).

I recommend jumping in real quick ... my schedule allows me to begin work in late October.

Thanks,

Kevin

Stop Emailing Customers Who Consistently Return A Lot Of Merchandise

Some of the omnichannel folks love it when a customer returns something. "It's another touchpoint, another chance to surprise and delight the customer!!"

Alright.

Profit, folks.

Profit is what you need to be looking at.

If you have a loyal email buyer, that buyer spends 40%(ish) of what they buy via email marketing (often it's 75%, especially if you don't have a print channel which most brands don't have). And if the customer returns 60% of what the customer bought previously, the customer is likely to return 50% (or more) of what the customer buys in the future.

Here's an example.

• Email buyer expected to spend $120 in the next year, $60 via email marketing (gross demand before returns).
• Average price of an item = $30.
• Expected return rate = 50%.
• Cost to process a return = $10 per item.
• 30% of sales flow-through to profit.

Future Email Marketing Profit = $30*0.30 - $10 (for one item returned) = Loss of $1.

Now, if you don't email this customer (or email them 2x a month instead of 2x a day), you put money in your pocket.

Stop emailing customers who consistently return a lot of merchandise, ok? It's not hard to do. Perform the math and get busy generating more profit.

Beginning Next Week: Hillstrom's Newbies

Next week, I'll begin a process of explaining a new project that I call "Hillstrom's Newbies".

Now that the "COVID-bump" has ended for most businesses I analyze, we need to understand what help/harm we are doing to our businesses via customer acquisition. More than half of my clients generate 40% or more of their annual sales via new/reactivated buyers. Most e-commerce businesses are highly dependent upon new/reactivated buyers for success.

What was the inspiration for this project offering?

A few weeks ago on Twitter a Professional complained that iOS changes merged with Facebook performance resulted in 50% sales declines (or more) for many clients. These companies acquired most of their customers via a fusion of iPhones and Facebook ads. We all know about the "tracking changes" Apple implemented. The downstream impact on Facebook (coupled with the end of the COVID-bump) is crushing many seven-digit and eight-digit businesses.

So I began analyzing new customers in depth for several clients. The results were enlightening. Honestly, the future success of our businesses is dependent not only on having a robust customer acquisition program, but making sure we acquire the "right" customers and not just the "easy" customers.

What will you get in a "Hillstrom's Newbie" project?

• A thorough analysis of customers acquired in the past two years.
• Analysis of marketing channels that yield good new buyers.
• Analysis of marketing departments that yield good new buyers.
• Do winning items (your best sellers) deliver good new buyers?
• Where applicable, do sold-outs and returns hurt new buyer performance?
• Are there acquisition months that harm future performance (like December - hint hint)?
• Do high prices or low prices help/hurt future performance?
• Do discounts/promotions help/hurt future performance?

The cost of the project will be $16,000. If you ask for a Hillstrom's Customer Development project, I will include "Hillstrom's Newbies" for free ... yes, for free. No cost.

As I usually do with new projects, I will offer the first three clients who say "yes" a reduced rate of $11,500 for this project, as long as the request is received by October 10.

Contact me now (kevinh@minethatdata.com) for details.

Profit Above Replacement Customer

"Profit Above Replacement" customer ... PAR. If baseball has "WAR" or "Wins Above Replacement" player, marketing should have something comparable.

When do you need to replace a customer?

For most of my clients, once a customer fails to purchase in the past year, the customer needs to be replaced. Could the customer still purchase? Absolutely. But the odds are working against you at Recency = 13 months and beyond.

The graph below shows us how much profit a customer generates in the next year based on the recency of first-time buyers.

At Recency = 13 months, the customer is worth $4.50 of twelve-month profit. The customer has become a "replacement customer" ... s/he needs to be replaced as his/her value is now low and only forecast to become lower.

The orange curve illustrates how important the "Welcome Period" is ... during the first three months on your customer file the customer is generally worth at least $7.50 of 12-month profit.

When customers buy for a second time? $33.83 of twelve-month profit (in this example).

When customers buy for a third time?  $44.72 of twelve-month profit.

When customers buy for a fourth time? $50.59 of twelve-month profit.

Seventh time? $95.87 of twelve-month profit.

So yeah, when the customer is only worth $4.50 of twelve-month profit, it is time to find a replacement customer.

And yeah, you better work hard to convert the customer within three months ... because anywhere between $33.83 and up to > $100 of future profit is out there to be harvested from the customer.

Wins Above Replacement

In baseball you have a team of 26 players (30 in September) who all contribute to varying degrees of success.

Maybe your team is on pace to win 99 games. A team of strictly "replacement players" (i.e. players who don't cost anything or are being called up from AAA) is expected to win maybe 52 games. Therefore your team generated 47 "Wins Above Replacement". Each player, based on their contribution (i.e. statistics) is mathematically assigned how many wins they contributed over the course of the season.

Just look at the WAR column for the Milwaukee Brewers (click here) for an example. Or in the unlikely event that the Brewers aren't your favorite team, click here to see the WAR column for the Boston Red Sox.

E-commerce isn't any different. You might have a half-million twelve-month buyers. And whereas WAR is a backward-looking metric in baseball, PAR (profit above replacement customer) can be viewed as a forward-looking metric.

PAR.

Profit Above a Replacement Customer.

When you are actively trying to embrace Customer Development, you want to know how much each customer is worth ... what is their Profit Above a Replacement Customer?

What is a Replacement Customer?

It's the point where you need to replace the customer with a new customer. It's the point where the customer is no longer responsive enough to generate sufficient profit to push your business forward.

More on this topic next week.

Your Investment Strategy

A key component of Customer Development Strategy is knowing how much to invest in marketing to make sure you have a healthy business in the future.

Let me show you an example.

Let's say that you lose $15 profit acquiring a customer. Then, the customer delivers the following amount of annual profit in each subsequent year.

• Year 0 = $8 (this is in the remainder of the acquisition year).
• Year 1 = $12.
• Year 2 = $8.
• Year 3 = $5.
• Year 4 = $4.
• Year 5 = $3.

Each year you acquire 100,000 customers.

In the first year, you lose $15 per customer and then generate $8 downstream profit. In total, you are down $700,000 in the first year.

In the second year, you lose $700,000 from the new customers, but you get $12*100,000 = $1,200,000 profit from customers acquired the year prior. You earn $500,000 profit.

In the third year, you lose $700,000 from new customers, you get $1,200,000 from last years newbies, and you get $8*100,000 = $800,000 from customers from 2 years ago. Total = $1,300,000 profit.

In the fourth year you lose $700,000, you add $1,200,000, you add $800,000, and you add 5*100,000 = $500,000 from your initial cohort, for a total of $1,800,000 profit.

In the fifth year you lose $700,000, you add $1,200,000, you add $800,000, you add $500,000, and you add 4*100,000 = $400,000 from your initial cohort, for $2,200,000 profit.

And in the sixth year you lose $700,000, you add $1,200,000, you add $800,000, you add $500,000, you add $400,000, and you add 3*100,000 = $300,000 from your initial cohort, for $2,500,000 profit.

If you know what you gain downstream, you know how much you can spend to acquire a customer today. Losing $15 per customer today is wonderful, because downstream you make a fortune.

Leverage the concepts here to identify what the "right" payback window is. Don't just assume it is a 12-month window, ok?

Not Bad

For one brand, April 2020 - May 2020 was a bumper crop ... a COVID-bump of epic proportions. The CFO tallied up the receipts, and bonuses were paid out.

But what happened next?

This table looks at recency/frequency of the customers acquired during those two months.

The results aren't bad. There is an enormous glut of customers who haven't bought since (yellow colored cells).

About 7% of the customers are still active within a three month window (i.e. they purchased within the past three months). That's quite good, to be honest.

It is really hard to keep your customer base active and purchasing regularly. The natural inclination of customers is always decay - they gradually slip away and become harder and harder to reach.

Your marketing department has three key functions, ranked in order of importance.

1. Create Awareness that leads to first-time buyers.
2. Develop first-time buyers into subsequent purchases.
3. Harvest profit from loyal customers.

This company did (1) and (2) pretty darn well, didn't they?

Oh Boy

FYI - I'm moving on to math after this one, ok?

Fans didn't like long lines and too few employees to satisfy their needs ... perceived or real (i.e. water in 90 degree sun is a real need).

If you ever want to see what America is like in 2021, spend a few minutes and read through the comments on this Twitter post (just visit https://twitter.com/explore and look it up). Both sides.

So here we have your e-commerce or retail business. You have two needles you can move.

1. Salary + Benefits.
2. Love + Safety.

Many of you will tell me that you can't afford to pay somebody more than $11/hour to work in the call center or warehouse or retail store. You'll tell me that if you do that your business won't profitable.

Then you've got to move the Love + Safety needle. Care about your people & show it.

You can do that, right?

We're Just Going To Lie A Little Bit In Our Email Marketing, Ok?

On 9/9 this "omnichannel brand" sent out an email campaign saying "Today Only, 30% Off".

On 9/10, the same "omnichannel brand" sent out an email campaign saying "Today, 40% Off".

I guess technically the 30% offer was only for September 9.

But if you spend $200 on 9/9 you actually paid $140 ... spend $200 on 9/10 and you actually paid $120. The "omnichannel brand" cared so much about you that they were willing to charge you $20 more.

This is yet another example of a lack of love in commerce. Maybe the two are mutually exclusive, but they don't have to be mutually exclusive.

This also means that you, the reader, have an opportunity to fill that void of loveless commerce with love. Why not do just that?

It's Time!!

Yup, time flies when you are in a pandemic. Or drags on forever. One of the two.

Anyway, it is time for the next run of The MineThatData Elite Program! For just $1,800 (first-time members) and $1,000 for continuing members, you'll get your typical suite of analyses ... your rolling twelve-month view of the world, your comp segment analytics (which measure how your merchandise productivity compares to last year during COVID and vs. two years ago when life was somewhat more normal), and your annual rebuy table.

Your bonus analysis? I will perform a comparison of long-term value of the customers acquired pre-COVID to the customers acquired during COVID and then during this odd period we currently reside in. This won't be a full lifetime value analysis, for that would cost $$$$, but you'll know how the changes over the past few years are impacting your future.

Want to see what you'll get? Email me to learn more (kevinh@minethatdata.com). If you are an existing partner, you'll be invoiced next week.

Key deadlines:

• Payment due by October 15.
• 5 Years of data, one row per item purchased, due October 15.
• Analysis and writeup completed by October 31.

Thanks,

Kevin

Getting The Word Out

There's a fraction of the population who says "nobody wants to work". Well, don't tell that to this guy, who manned a busy corner on an afternoon when the official high hit a record of 110 degrees ... on September 9.

There's a group of omnichannel gurus who demand that retailers "just be remarkable", as if that is easy to do.

But there's also a group who thinks that paying somebody $11/hour to stand on a street corner on a 110 degree afternoon and hold a sign for four hours is "doing something".

This is not an example of "love" in retail. If you loved a co-worker, you wouldn't make the co-worker stand outside when it is 110 degrees out and hold a sign. You just wouldn't do that.

There is a gaping void in commerce. Love is being pushed out ... probably has been since the beginning of time.

And this means that you, as somebody who cares, have a huge opportunity to fill that void. Go fill it. There are other ways to get the word out about your appliance event.

Wrong Priorities

The omnichannel tech folks love this kind of stuff. Here's the refrigerator door, adorned with technology.

Now open the door and witness the indifference.

Does that look like love to you?

No wonder they won't let you see inside.

There's a camp of omnichannel gurus who want to use technology to "surprise and delight the customer".  They'll tell you to "JUST BE REMARKABLE". That's all. Just. Be. Remarkable.

Real work happens behind the scenes. This company spent money to give the appearance of a nicely merchandised store, then refused to spend any money to stock the shelves, so to speak.

As a customer, would you prefer technology that hides the merchandise or would you prefer that the product you wish to purchase is available and presented in a loving, caring manner?

Increasingly, it is obvious that love is what is missing. We seem to be stuck in a rut right now, we have the wrong priorities and we just don't seem to care.

All of that means there is a giant opportunity for those of you who do care ... and A LOT of you still care.

Black Friday - Cyber Monday Offer Structure & Lessons

Prove me right that this will be the most clicked on link I offer this year, and this post will be the most read post I write this year.  This article outlines direct-to-consumer offer tactics (for Black Friday - Cyber Monday) from a veritable plethora of trendy brands. Click through the link, read it, and then get busy.

P.S.:  Two things happens when I do this.

1. The content is incredibly popular.
2. I get reader feedback that "these ideas won't work because our brand is unique and special."

But it doesn't hurt to read through the document and think about what the authors are suggesting, correct?

P.P.S.:  I have no connection whatsoever to those who produced the content in the link. I just know a significant fraction of readers love this stuff.

Merchandise / Customer Collision

In a recent e-commerce project, it became clear that Google was determining what the e-commerce brand would offer, going forward. This has been true for years, but it really accelerated once COVID hit. Look at a rank-ordering of your best sellers by marketing channel (you do this, right?), and you'll see that Google is really pushing a different agenda than are other marketing channels. Google tells your merchants what to sell. If Search is 20% of your annual sales, Google is working on taking over your merchandising team. Yes, I realize you don't believe me.

In Retail, the customer willing to shop in-store is different today than two years ago. How you merchandise a store is fundamentally different than how you merchandise your online presence. The omnichannel gurus who want sameness in every channel have led you into a vendor-fueled cul-de-sac. Some customers want to shop in stores, and their needs post-COVID are fundamentally different than are the needs of the online customer.

In catalog marketing, your paper partners and industry consultants and co-op reps steered you to a 65+ year old customer who won't buy unless you send paper to the customer. What on Earth are you going to do going forward when you don't have paper available and you try to sell merchandise that a 67 year old woman likes to a 37 year old woman on social or searching via Google? That dynamic isn't going to work, is it? Imagine the 2-3 year pain window you'll have trying to sell merchandise that retired men/women like to customers thirty years younger?

Regardless of your business, there is a merchandise / customer collision awaiting, just around the corner. Your job is to manage the collision so that there aren't bigger problems. Do just that, ok?

Lies

Can I tell you a story?

I once worked with a retail brand who mailed catalogs to retail customers. We executed years of mail/holdout tests, and we knew inside-and-out that mailing catalogs to retail customers ... DID ... NOT ... WORK.

Here were the results:

Mailed Group = $10.00 spend per month across all channels (most of the spend was in retail).

Control Group = $9.70 spend per month across all channels.

Cost of the Mailing = $0.60.

Profit Factor = 40%.

Profit per Mailing = ($10.00 - $9.70) * 0.40 - $0.60 = ($0.48).

Every catalog mailed to a retail customer hemorrhaged $0.48 ... it was like taking a half-dollar coin and throwing it into the ocean ... over and over and over again, a million times a year.

So one morning my phone rings (about five years ago). It is an Executive working for a Catalog Vendor. The Executive begins yelling. The Executive tells me that their Agency is now in charge of the account with the retail brand, and that my services will never be needed again. 

The yelling continues ...

"HOW COULD YOU BE SO STUPID AND STOP MAILING CATALOGS TO RETAIL CUSTOMERS? THIS IS THE DUMBEST THING I'VE EVER HEARD OF. WE ARE IMMEDIATELY REINSTATING ALL OF THE CATALOGS AND WE ARE TELLING EVERY RETAIL BRAND THAT WE WORK WITH TO NEVER WORK WITH YOU AGAIN."

I then shared the mail/holdout results, showing how the mailings were absolutely awful.

"YOU CAN'T TRUST MAIL/HOLDOUT TESTS, THE TESTS DON'T CAPTURE THE INTANGIBLE BRAND BENEFITS OF PRINT. ARE YOU DUMB? FOCUS ON MATCHBACK RESULTS. YOU DON'T MEASURE RESULTS WITH TESTS. AND YOU KNOW THAT."

Yeah, I remember the Executive asking "are you dumb?"

For some reason, I kept trying to defend my decision via data. And if there is one thing we've learned as a society in the past five years, it is this ... there is a significant fraction of society that does not want to hear about data. A significant fraction of society just wants to believe a narrative.

This individual ... this Catalog Agency Executive ... this person lied. This person lied in an effort to grow business for the Agency ... at the expense of the truth, at the expense of what was/is right for the retail brand.

And yeah, this Executive is still doling out advice to catalog marketers who do not understand math.

Why am I telling you this?

Because if you work in the catalog industry, you are at times fed a series of lies. You are misled by "trusted partners". Ask anybody impacted by the paper crisis of 2021. You're being told that nobody wants to work on a bindery line so there may not be capacity for your job. That's a lie. Nobody wants to work at the wage offered by the printer. People seem to want to work for Amazon. 

You're being told that print is being reborn. That's a lie. Your paper partners have been shutting down mills for a decade - they wouldn't do that unless demand for paper was ... decreasing! Demand doesn't decrease when something is being reborn.

You're being told by industry experts to ignore actual experiments ... A/B test results (mail one segment and not mail another segment, measure the incremental lift between the two groups). The industry would rather have you use a highly flawed technique of attaching every order generated within "x" days of a catalog mailing. Terrible logic. Highly flawed. Analytical malpractice. And the industry would tell you that this is a "best practice". It is not a best practice. It is a lie.

In 2022, you have no choice but to re-evaluate your print efforts. Your "trusted partners" are telling you to do things to protect THEIR business. You need to protect YOUR business. And you have literally thousands of digital strategies you can employ to replaced failed tactics. Why not employ them? 

What stops you from moving into the future? 

Most importantly, what motivates you to continue believing their lies?

Contact me right now (kevinh@minethatdata.com) if you want help protecting your business in 2022. We'll get busy doing what is right for your customers and your business. Don't let industry lies trap you in a paper-based cul-de-sac.

P.S.: The Vendor Executive reached out to me two years ago ... said we should "chat" about what is going on in the industry, as if there wasn't a prior conversation at all.

P.P.S.:  I read an article today from a Catalog Industry Consultant, who said that there is a labor crunch for bindery line employees at printing facilities. Another person on Twitter said that "nobody wants to work". Saying "nobody wants to work" is a lie. If nobody wanted to work, explain how Amazon has hired more than a million ... A MILLION ... people in recent years? Explain how they'll hire another 50,000 this fall? Why is it that Amazon has no problem hiring people? Wouldn't Amazon be impacted in a dire way if "nobody wanted to work"? Of course, Amazon pays a minimum of $15/hour and benefits ... and yes, some of you are about to beat me silly because you know that there are problems at Amazon. So have at it. But always remember that the issue isn't that "nobody wants to work". The issue is that "nobody wants to work at the wage being offered." That reflects on the brand trying to hire somebody.

Never Going to be the Same

I went back and looked at the major themes I've focused on over the past fifteen years writing this blog:

• 2006 - 2009 = Understanding how customers and channels interact.
• 2010 - 2013 = Changing your catalog/email contact strategy to optimize your business.
• 2014 - 2017 = Merchandise Forensics.
• 2018 - 2019 = Fixing a struggling business.
• 2020 = COVID.
• 2021 = Customer Development.

We can see how, heading into 2022, Customer Development is going to be really important.

Maybe you are a retail brand trying to rebuild. The customers currently using your store are different (go look at the data) today than they were in September 2019.

Maybe you are an e-commerce brand trying to battle against Amazon. Maybe you sell on Amazon and notice that Amazon buyers never purchase from you directly. You need to Develop Amazon customers differently than your own customers (i.e. it's best not to just ignore Amazon buyers and it is best to not treat Amazon buyers like your own customers).

Maybe you are a catalog brand who has been neutered by the paper / printing industry supported by a consultancy pushing a failed agenda. Maybe you've been told you MUST mail 24 catalogs a year ... nearly every other week ... to the point where you recruited a 66 year old customer who won't shop unless you mail a catalog ... only to now be told by the industry that there isn't paper available for you this November. Good luck!! For you, Customer Development just became you biggest challenge. You'll need to contact me immediately, because we have a lot of work ahead of us (click here).

Business is never going to be the same ... 2019 may as well have been 30 years ago instead of two years ago. We're moving in new directions now, and we need to focus on Customer Development if we're going to succeed.

If you disagree with me, let me know, I welcome your feedback.

Class Of

For many of you, your Fall assortment is about to be unveiled.

You have new items being introduced this Fall, assuming they aren't sitting on a ship somewhere in the Pacific.

I wrote at length about some of the analytics behind each merchandise class (click here). If you want successful marketing efforts tomorrow, you have to have successful new product classes today.

One of the hidden problems of the "COVID-bump" has been new merchandise ... specifically, Google changed the trajectory of e-commerce brands by pushing traffic via existing merchandise. While sales jumped for about a year, sales of new merchandise generally didn't jump. This is going to cause problems downstream, especially if sales recede to 2019 levels.

Marketers can help their merchant partners out. Use your email marketing campaigns to feature new merchandise. Give your merchandising partners every opportunity to succeed. The future of your brand might depend upon it.

Labor Day Weekend

I always view summer as a pair of bookends, one on Memorial Day Weekend, one on Labor Day Weekend. To me, late May is filled with optimism. Early September is an end, and I'm not a fan of endings.

You go to work every day (or you endure six hours of work-based video conferences while juggling the roofer that came to stop a leak) trying to stop or delay the end of the business you work for. If you work in retail, you know darn well what forces are trying to end your business. if you work in e-commerce, you know that Amazon accounts for 40% to 50% of e-commerce, an existential threat designed to end your business. Catalogers lost control of their business this Fall when the paper and printing industry couldn't obtain ... paper.

Take the weekend off, Lord knows you've earned it. You do not belong to a "996" work culture (click here).

But when you come back to work next week, remember that it is your job to delay the end of your business as long as you can. Regardless whether you work for Sears or Whoop, your job is the same. The trajectory of your mission is all that is different. Regardless, your work is important.