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.