September 25, 2022

A Little Productivity Goes A Long Way

Let's use the world of Google as our window into the magic of merchandise productivity.

Ok, you spend $15,000. You get 20,000 clicks. Congrats!  Of the 20,000 clicks, 400 customers convert and buy something, spending $100 each. Your profit factor (you know what your profit factor is, correct?) is 30%.

Net Sales = 400 * $100 = $40,000.

Variable Profit = $40,000 * 0.30 - $15,000 = $12,000 - $15,000 = ($3,000).

You lost $3,000. You got 400 customers to buy something.

Profit (Loss) per Order = ($3,000) / 400 = ($7.50).

You lost $7.50 per order.

Now, let's say that a year later your merchandising team increased productivity by 15%. That's a big deal! Does it matter when it comes to your marketing efforts?

Instead of 400 customers converting, you get 460 customers converting, spending $100 each.

Net Sales = 460 * $100 = $46,000.

Variable Profit = $46,000 * 0.30 - $15,000 = ($1,200).

You lost $1,200. You got 460 customers to buy something.

Profit (Loss) per Order = ($1,200) / 460 = ($2.61).

You went from losing $7.50 per order to losing $2.61 per order.

All because merchandise productivity increased by 15%.

Now imagine what happens if you were originally losing $2.61 per order? You'd be making money.

Marketers don't want to hear this fact ... but marketers are fully dependent upon their merchandising/product partners. When these people are successful, marketers are successful.

The smart marketer spends a lot of time figuring out which products work ... they spend more time on product than they spend on channels/keywords/conversions. By understanding the products that work, the smart marketer turns a loss into a profit. Everybody benefits. Because of a smart marketer.

September 22, 2022

It's Time ... Again!

It's time for another run of the MineThatData Elite Program!

For existing clients ($1,000) and new clients ($1,800) you'll receive my standard suite of program analytics (Rolling Twelve, Comp Segment, Repurchase Activity). We'll also answer the time-honored question ... "Do You Have Loyal Customers?" with a logistic regression model designed to identify the factors that contribute to customer loyalty. So many of you question the logic of customer acquisition with the "loyalty matters more" reply. I'll identify what your loyalty opportunity is, ok?

Contact me now to participate (kevinh@minethatdata.com).

  • Participation Deadline = September 30.
  • Five Years of Data From 10/1/2017 - 9/30/2022.
  • Payment Due By October 15, 2022.
  • Data Due By October 15, 2022.
  • Analysis Delivered By October 31, 2022.

September 21, 2022

Not Understanding Merchandise Personalization

I've told this story before, but it comes up often enough that it bears repeating. I'm at a meeting at a "Portfolio of Brands" ... meaning that a holding company scooped up a bunch of brands and they're having a strategy session with the heads of each brand (and other assorted Executives).

One of the sessions includes a analyst sharing results of online personalization testing. This woman, probably 27-30 years old, was FABULOUS. Full of energy, passion, and she made her brand A FORTUNE. It's quite possible that 10% of net sales, on an annual basis, were because of her and her alone. This also likely means that about 30% of annual profit was because of her and her alone.

Think about that for a moment.

She finishes her presentation, and the room full of Executives all begin giggling and whispering ... they're having private conversations about how geeky her presentation was. In essence, they didn't listen to her words (because her words showed that they were going to get nice bonus checks ... because of her), they addressed her as an entity ... they perceived she was a nerd.

Maybe she was a nerd.

They didn't realize they needed a nerd.

Every analytics person reading this post knows exactly what it is like to be humiliated by a traditional business Leader for no good reason other than making the traditional business Leader look good. In the next ten years, we're going to see significant changes in Upper Management. Baby Boomers will continue to leave the workforce, replaced by a different mindset. Something will be lost, no doubt about it. But something will be gained ... like respecting the woman in this post.

September 20, 2022

Completely Misinterpreting Success

The CEO is frustrated.

  • "Online, as a percentage of sales, is just 12%. We are a complete failure."

The Marketing Executive is frustrated.
  • "Online is failing because we haven't created a seamless, frictionless omnichannel experience. Let's whiteboard some ideas!"

The consultant (that's me) is thrilled.
  • "You have the highest sales per square foot I've ever seen. The reason your customers aren't shopping online at high rates is because they WANT to be in your stores."

Needless to say, the CEO and the Marketing Executive severed ties with me after that comment. They found the usual array of pundits, consultants, vendors, researchers, and trade journalists who agreed with them that their HIGHLY PROFITABLE business was a failure because their online penetration was below the industry average.

I was in a mall last week ... according to the CEO above, this is what success should look like ... a completely empty store with customers buying online instead.


Yeah, there it is ... success!

Or maybe this style of visual merchandising is considered success. I mean, my goodness.


I mean seriously, what in the name of Montgomery Wards is going on here?

Also notice there's not a soul in the store ... but there are balloons and whatever the heck that is that is greeting absolutely nobody at the entryway to the store.

Here's a hint for those of you out there in the studio audience ... if you are a terrible in-store merchant, your online sales penetration will increase. If you are a brilliant in-store merchant and customers WANT to be in your store, guess what? Your online sales penetration will go down.

You don't understand how business works if your sales per square foot are industry-leading and you are complaining about it.



September 19, 2022

Speaking of Not Understanding How Business Works

Having worked at Nordstrom for more than six years, I'm confident there is a team of "Brand Strategists" who work at Saks and are painstakingly critical of any activity that does not "protect the brand". If you are a middle manager who wants to have some sort of field event in a parking lot there will be a Brand Strategist who tells you that you do not understand the brand and that you need to go back into a conference room and sit there until somebody delivers a box lunch to you for sustanance.

And yet ... the Brand Strategist lets this pass. Follow the orange arrow.


Tell me how either the Digital Marketer or the Brand Strategist know anything about how business works? How is this "protecting the brand"? Is this how you want your brand portrayed, with a horribly flimsy digital ad that is 40% cut off by some redonkulous video that nobody will ever watch?

The Digital Marketer knows how ad delivery works, so that individual knows something.

The Brand Strategist knows ... what? I don't know. But the Brand Strategist should never allow this to happen, correct? 

Here's a peach for ya ... as I performed a screen dump Norton informed me that it blocked a malicious attack from this page. What does the Saks Brand Strategy team think of that? How does that "help the brand"?

I know, I know, here comes the hate mail ... "Kevin, you don't understand how digital marketing works". Yeah, I understand how digital marketing works, you have no idea where your display ads end up and nearly half of the money is skimmed off the top by shady third parties. That's how it works.

"Protect the Brand". I've been in a thousand meetings and Zooms where somebody who doesn't understand how business works utters this phrase to say "no" to something while allowing this nonsense to happen, happily saying "yes" by turning a blind eye to an entire advertising discipline.

Here comes more hate mail ... "But Kevin, you don't understand how digital marketing works, you just don't have control over where your ads end up." Maybe that's the point. Maybe you shouldn't engage in a discipline where you no control over anything. Your Brand Strategist would tell you that in five seconds, right?

September 18, 2022

30,000 Feet

Have you ever sat in seat 17F on a United flight into Chicago?

You look outside and you see thunderheads. Big storms. You are flying the Friendly Skies, the sun is out, and your six ounce diet soft drink rests comfortably on your tray. At 30,000 feet, things look a certain way.

Directly below you, however, the thunderstorm has just moved through. Flash flooding is happening. A tornado ripped through a residential community. At 0 feet, it is a very different story.

If you want to meet somebody who does not understand business, sit down with a Strategist for a half-hour. We've all been there. The Strategist sits comfortably, and asks a lot of "what if" questions, with thumb and index finger on chin.

I met one of these people at a conference in the "before days". His business was in free-fall, and had been for several years. He reached out every few months with a strategic question.

  • "I want to hear your opinion. If Amazon Web Services can fund their e-commerce losses, do you think Amazon can obtain 50% or greater e-commerce market share, and if they do achieve 50% or greater e-commerce market share, what does that mean for small and medium businesses?"

This Strategist was the Chief Marketing Officer. It was his job to fix his business, not opine on Amazon Web Services. And yet, he emailed me these questions on a periodic basis, and when I elected to answer his questions he came back at me with ... wait for it ... more questions!
  • "But we need to take a 30,000 foot view here, don't you think? If Amazon Web Services ends up being 80% of Amazon's annual profit, then they can fund e-commerce with another business unit, further lowering prices and subsequently driving all of us out of business. That's the view we need to be taking here, don't you think?"

There it is.

The Strategist is looking for somebody to blame when he cannot come up with the 39,443 new customers he needs for his brand to meet sales goals for the year. It's not my fault, it's AWS that is killing my business.

Eventually this CMO lost his job because his business floundered. He understood how AWS might impact an ecosystem, but he didn't understand business. All he had to do was spend time finding an additional 8,000 new/reactivated customers. That's it. Just find a tactic that opened the door to just 8,000 new/reactivated customers, and he and his business would still be here.

The 30,000 foot view, the "Above The Clouds" view of business, it's dangerous. It's fine if you understand how business works and have a tactical approach to delivering sales/profit for your business. It's not fine if that is where you spend all of your time.

September 15, 2022

The Wrong Metric

You've probably been in this situation as well.

The Marketing Executive is struggling with a mostly unprofitable business. He sends me his customer data, I perform an analysis, and I show him that he is spending a fortune acquiring customers and then is generating very little future profit. He's losing $25 of profit acquiring a customer, and then over two years he makes maybe $30. That's a net of $5 variable profit. You cannot survive when your customer base delivers $5 of variable profit - there's not enough profit to cover fixed costs.

The Marketing Executive gets a terse look on his face, and he says the following.

  • "Profit is an outdated metric. We look at ROAS."

You couldn't possibly say something that communicates the fact that you do not understand your business more clearly than by saying you analyze customer acquisition via ROAS. He's clearly using the wrong metric. And he doesn't like it that I'm pointing this out to him.
  • "ROAS as a metric is a best practice. All the smart digital folks use it. Profit is a relic of a time gone by."

ROAS, as you know, is not a best practice, and not all of the smart digital folks use it. ROAS is simply the ad-to-sales ratio, inverted. Maybe you spent $100 on a paid search campaign and got $250 of sales as a result.
  • ROAS = $250 / $100 = 2.5.
  • Ad-To-Sales-Ratio = $100 / $250 = 0.40.

Both metrics are identical. One was used in the 1980s. One is a best practice used by all of the smart digital people.

Neither metric matters.

What matters is this:
  • Did you generate enough profit on this transaction to align with future profit, allowing your business to thrive?

Let's assume that your "Profit Factor" (you know what that is, right?) is 40%. How much profit did the $100 of marketing expense generate?
  • Profit = (Sales) * (Profit Factor) - (Ad Cost).
  • Profit = $250 * 0.40 - $100 = $0.

In the example above, your marketing efforts broke even. You're fine.

What happens if your profit factor is 35%?
  • Profit = $250 * 0.35 - $100 = ($12.50).

You lost $12.50.

Now you count how many customers ordered (pretend it is 2), and you divide your loss by the number of customers ... ($12.50) / 2 = ($6.25). You lost $6.25 per customer.

If the customers you acquired generate $30 of future value, you are fine. You net out at $23.75 of total profit over time.

If the customers you acquired generate $5 of future value, you are not fine.

ROAS doesn't tell you any of that, does it?

The more "canned" our analysis software has become ... the more reporting we accept from vendors as truth ... the less sophisticated and nuanced our work becomes. We're looking at the wrong metric(s) ... all the time. It's clear when we're looking at the wrong metric that we do not understand the business we are managing. When we look at profit, we understand the business we are managing.

September 14, 2022

We Can Fix That Rebuy Rate

This happened seven or eight years ago. You've likely been in the same situation. I'm sitting in the Executive Conference room at a nine-figure brand. Everybody enjoyed (to some extent) their box lunch. After a morning of presentations, it was time to get down to business.

This brand had customers who repurchased at a 34% rate (in other words, of all customers who bought during 2015 just 34% bought again in 2016). And the rate had gotten worse and worse over the past five years.

How does Management fix this business?

Well, the CEO had ideas. He starts yelling "WE SIMPLY HAVE TO FIGURE OUT HOW TO GET CUSTOMERS TO BE MORE LOYAL, THAT SOVLES EVERYTHING".

The CEO looks to me, knowing what I'm going to say.

  • "What do you think?"

I'll tell ya what I think.
  • "Stop cutting back marketing spend on customer acquisition and start focusing on what your business is, not what you want it to be. You are in the business of finding new customers on a continual basis."

That was not what the CEO wanted to hear. Knowing I would say that, he slams his fist on the table (I sense this wasn't the first time he's done this to intimidate a consultant or a staff member). "I WON'T ACCEPT THAT ANSWER. I SIMPLY WON'T ACCEPT IT. WE HAVE TO CRACK THE CODE. WE HAVE TO CRACK THE CODE. THAT'S THE WRONG ANSWER. THE ANSWER IS SITTING RIGHT HERE IN THIS ROOM. NOW TELL ME WHAT WE'RE GOING TO DO TO FIX OUR REBUY RATE?"

These are always fun moments as a consultant. The CEO fundamentally does not understand his own business. He is making the wrong decision, and desperately wants to be right by making the wrong decision. Have you ever known an Executive who desperately wants to be right by making the wrong decision?

The entire room turns to look at me ... they're clearly happy the CEO is screaming at me and not them.

This is where there are advantages to being a consultant.

I take a breath.

And then I respond.
  • "You have been CEO for six years. You have tried everything you and your team can possibly think of to increase repurchase rates. If the answer was sitting in this room, wouldn't the answer have appeared before today? You already know the answer to your question."

There are moments when you expect security to usher you out of the building. This was one of those moments. There are twelve executives in the room and one CEO, and not one of them is looking at me or anybody else. Every head is pointed down at the table. Including the head on the neck of the CEO.

Not one of the highly paid people in that room understood their business ... or were too frightened to communicate that they understood their business. Either way, the end result was the same.

You cannot fix your rebuy rate. The merchandise you sell determines the range your rebuy rate will reside in. If your rebuy rate is 34%, it could be 28%, it could be 40%. It cannot be 64%.

And if your rebuy rate is under 40%, your number one job as a Leader is to constantly find new customers at a low cost. You have no choice. The products you sell dictate a low purchase frequency, and given that you are not shifting to a different product assortment, you have no choice but to acquire new customers at "scale" as the kids say, and at a low-cost or at no cost.

Close to a decade later, this business is in the same place, marooned by Leadership that fundamentally does not understand how their own business (products and customers) operates.

You cannot fix your rebuy rate if you maintain the product assortment you've always sold to customers. You can improve it. You cannot fix it.

This is the point in the blog post where the experts send me email messages telling me why they are right and I am wrong. Happens every week. When you do that, please send me the receipts ... cases where you took a 28% rebuy rate and made it a 65% rebuy rate by selling the same merchandise assortment.

September 13, 2022

Completely Misunderstanding Your Merchandise Assortment

Many of us have been there.

Your business is failing, so the Board or Ownership clean house. They hire a new CEO, the new CEO brings in Executives she can work with. It's a new team, and the team is going to make changes. Everybody who came before them are idiots. Everybody who doesn't "onboard" is an idiot.

This team HATES the merchandise being sold. They know that what is being sold wasn't embraced by the customer, so it is time to make guesses as to what the customer "wants".

Existing items are discontinued.

New items are introduced.

Business absolutely tanks.

Eighteen months later, the CEO is fired (she wants to spend more time with family, or so we are told). Executives scatter into the wilderness. Another rebuild begins ... this time going back to the formula that originally failed.

Some of you in the marketing community, some of you who are Executives, you don't understand how a merchandise assortment works. If you sell items that have a long life (i.e. you've sold them for eight years and they continue to sell well), you can't simply discontinue the items and replace them with something unproven. You have to develop new items carefully. Conversely, if you work in fashion, you can discontinue just about anything and you'll be fine ... the life of an item might only be three months. 

If you don't understand business, you'll misinterpret a "winners" business for a "fashion" business and that's a recipe for disaster.

September 12, 2022

Loyal Customers

It's easy to get caught in this trap. You visit Starbucks every day, so you know what a "loyal" customer looks like (she looks like you).

Businesses that have loyal customers have an advantage. Not every business can have loyal buyers (I realize this goes against everything you've been taught). Brands that have loyal buyers tend to have three advantages.

  • Customers "need" what you sell (i.e. a Pharmacy, Target).
  • Customers "want" what you sell (i.e. Starbucks).
  • The "need" or "want" must be replaced, often.
If you sell something that is purchased at Christmas, as a gift, you're gonna have trouble generating loyal buyers. The customer only "needs" or "wants" what you sell once a year.

People who don't understand how business works try to advocate that they have a "loyal" customer base when the products/merchandise they sell do not lend themselves to loyal customers. Vendors love preying on these individuals - if you only emailed your customers more often or gave them bigger discounts or hounded them all across the internet via display ads you'd have a loyal customer base.

Nonsense.

Try selling something that the customer wants or needs on a frequent basis, and you'll have a loyal customer base.

What you sell dictates whether you operate a business that is funded by loyal buyers. It starts with what you sell, not with your customers.

September 11, 2022

How Business Works

A Twitter user forwarded me an interesting article from more than a decade ago (click here).

There's a quote in the article, in the footnotes, that resonates:

  • "That gravels me. I cannot think of another industry in which the uttermost basics of how the product works are a mystery to the people in that industry. There is nothing, to any with IQs much over their hat size, mysterious or controversial about analysis: it's just the way things work, and that's that. Yet a coach on the major-league level (coaching on a team last in all the majors in OPS) can to this hour be found publicly remarking, "You want to see a walk? Go watch a mailman." How is that possible? How can businesses with annual payrolls approaching a tenth of a billion dollars not have any least idea how their business works?"


The quote doesn't just apply to baseball.

One of the most frustrating experiences of my consulting work was a pairing of analyst and executive. These two understood every aspect of Google Analytics. They could tell you how much traffic they had, they could tell you where it came from, they could tell you how it converted. They knew nothing about their business. When conversion rates dropped by 10%, they panicked. They didn't even bother to look at new merchandise (which was a problem). They just started blaming vendors and co-workers for random issues.

This week, we'll talk about How Business Works. There is a natural cycle in your business. If you understand the cycle, you can do something that gives you a competitive advantage over the pair of guys I described above.





September 07, 2022

Acquired via Discount

Here’s what I see in a typical project:

Customer acquired via discount/promo = more likely to purchase in the future, much more likely to buy via discounts in the future, less profitable in the future unless the response increase is greater than 30%ish.

Customer acquired via full price tends to be less responsive and more profitable in the future.

You get to pick the business model you want and the customers you want. You get to decide how profitable you want to be in the future. The choices you make today dictate how you’ll behave next year and beyond.

September 06, 2022

Peak Acquisition Time

We’ve talked about this many times. The easiest time to acquire a customer is before Christmas. But those customers tend to have the lowest future value.

The best time to acquire a customer? Just before a peak season. Why is that?

Well, if you acquire a customer in September or October, the customer is very recent (responsive) at the very time (Nov/Dec) when customers are most likely to buy something. You get to double dip on response.

The best marketers (that’s you) already know this and take advantage of this dynamic.

And yes, when I discuss this topic I get complaint emails. I have the receipts. Doesn’t matter. It’s an uphill battle to counter best practices with actual customer data. But the battle is worth it.

September 05, 2022

Gross Margins and Marketing Investment

Duluth Trading Company generates 55%ish gross margins. For every $100 they sell they produce $55 cash. Then you back out pick/pack/ship expense and it is reasonable to guess they generate $40 cash per $100 sold. This means there is a lot of cash available for marketing purposes.

Best Buy generates 22%ish gross margins. Back out pick/pack/ship expenses and they likely generate $10 cash per $100 sold.

Which company can afford to generate new customers via paid marketing channels?

Which company must be a lot more clever?

Some of the biggest marketing blunders I’ve been associated with over 3.5 decades doing this work involve new marketing teams trying to rebuild brands without an understanding of how gross margins dictate marketing investment. It is frustrating to see the channel-centric investment approach leveraged when gross margins don’t let you lose much money acquiring a customer.

August 31, 2022

Marketing Campaigns

Somebody in soccer once said that a good manager improves a team by 10% but a bad manager harms a team by 30%.

Something similar could probably be said for marketing campaigns. Have you ever noticed that you have far more campaigns today than you had in 2007 and your annual customer retention/rebuy rates are flat or down vs. 15 years ago?

How is that possible?

Campaigns suffer from "regression to the mean".

Let's say that your customer rebuy rate (on an annual basis) is 36%. Let's assume that you have 24 key campaign windows per year, two per month. This means that 1.5% points of your rebuy rate are "at play" during any window.

Now let's assume that a brilliant campaign increases your 1.5% points of rebuy rate by 20%. The 1.5% response that is at play become 1.5% * 1.20 = 1.8%.

On an annual basis? You increased rebuy rates from 36% to 36.3%. On an annual basis you accomplished nothing.

Because results regress to the mean ... in other words, you are not going to have 24 perfectly flawless campaigns that inspire all of your customers to purchase.

This is the failure of marketing campaigns. They all cannot be great, therefore, as a collective they do not fundamentally change the purchase dynamics within your customer base (though they create a TON of work for your staff and for your vendors).

This is why I continually harp on three key elements to marketing strategy.

  1. Customer Awareness, which leads to Customer Acquisition success.
  2. Customer Development, which pushes a 1st time buyer to a 2nd order within 12 weeks of acquisition.
  3. Profit generation among all good customers, which funds all activities at your company.

You can accomplish 1/2/3 above many different ways. You do not need specific campaigns to accomplish 1/2/3. This is a change of thinking that will cause many of you to feel uncomfortable. But it is a necessary change of thinking.

August 30, 2022

Reader Questions

Yesterday I discussed a paid search test.  https://blog.minethatdata.com/2022/08/channels-arent-what-they-appear.html.

The test/post yielded questions from you, the loyal reader.

“Why would organic search revenue increase when paid search is turned off.”

“Why would customers spend more via email marketing when search is turned off?”

“Why would our vendor reporting over-state the importance of paid search?”

“Our attribution vendor shows us something very different and they are using AI and you are using an A/B test so their science is better than yours, correct?”

“Are you honestly telling me that in this case paid search is causing the company to lose money? Because if that is true, you have no idea what you are talking about.”

“You tested Boise and Salt Lake City - those cities don’t represent the America my customers live in, thereby invalidating the test, correct?”

“You are evaluating success via profit. ROAS is a better metric, don’t you think?”

“We ran this post by the Executive Team at an agency we respect and they said this post is utter gibberish.” (that is a comment, not a question).

All of the responses/questions avoid the point of the post. Not one question dealt with the reality that a test produced results different than typical reporting produce. When that happens via a controlled test, ask yourself instead what it means if the test results are right and you and your vendor partners are wrong?




August 29, 2022

Channels Aren't What They Appear

I introduced a brief quiz on Twitter regarding marketing channel performance. The answers I received were generally unsatisfactory.

Here's the gist of the question. A "brand" executed an on/off test. In Boise paid search is "on", in Salt Lake City paid search is turned "off" for a period of time. Matched market test.

For the month of the test, here's sales performance by major marketing channel.


Key facts from the test:

  • When paid search was turned off, organic search results improved.
  • When paid search was turned off, email / display / paid social / other website revenue marginally improved.
  • When evaluating paid search by itself, it generated $10,000 in sales.
  • When evaluating paid search in combination with other channels, paid search generated $2,000 in incremental sales.
  • When evaluating paid search in combination with other channels, paid search expenditure resulted in a loss, not profit, of $4,300.

Questions for you:
  • Which numbers from the table above would you share with your Executive Team?
  • Do you believe the results of the test above? If the answer is "no", what does that say about you as a "data-driven" marketer?
  • How would you adjust your marketing strategy based on the results of this test?
  • What attribution rules would you implement as a result of this test?

Please discuss.

August 28, 2022

Yup, They Matter

Have you ever looked at a cohort of loyal buyers and observed what happens over the next two years?

Here's a cohort of customers who purchased for the fifth time two years ago. What did these customers accomplish?

  • 86% purchased again over the next two years.
  • Those who purchased again bought 4.18 times over two years.
  • 65% were still 12-month active after two years.
So yeah, loyal buyers matter. They're printing profit for your business.

And interestingly, within two years 35% of this cohort of loyal buyers have faded away. The company I'm analyzing here is really, really good at developing customer loyalty - likely far better than your company is at developing customers who are loyal. But this company is going to ultimately lose most of the loyal buyers as well.

You take the profit you get from loyal buyers and you reinvest it in new customers ... of which 10% will become ... loyal buyers!

Customer Development. It matters.

August 24, 2022

Days of Our Lives


This isn't altogether different than the business situations you manage. The program is your product, it's the merchandise you sell. It's an old winner. Now it attracts "old" customers, and is utterly cut off from the rest of your merchandise/customer ecosystem. In response, NBC moves the program (for a year) to their digital platform, where few of the "old" customers will take the plunge, allowing the program to die an uneventful death.

In the Merchandise Forensics work I've performed over the past decade, this topic reappears in the catalog world ... not as much in e-commerce where items churn faster. Catalogers have long-time winning items, and they squeeze profit out of those items forever. Eventually, those specific items have a fan base of long-time customers (i.e. age 65), and those customers (and the product) become disconnected from the rest of the business. The cataloger has a choice ... discontinue the item and lose profit today in an effort to be more relevant in the future ... or run with the product today and have a customer base that is disconnected from the future.

I know, it's not an easy choice.

I'll go back to 2006 when we eliminated the catalog division at Nordstrom. The business hummed along like nothing happened (i.e. a high organic percentage meant that the catalog was essentially meaningless from a profit standpoint). However ... however ... at a customer level the business changed significantly.
  • Our investment in e-commerce and the products that sold well to e-commerce buyers meant that we attracted new customers age 30-45.
  • Our disinvestment in catalogs and the products that sold well to catalog buyers meant that we abandoned customers age 60+.

I got to review customer complaints. Our customer service team would forward me postcards received from 77 year old women in North Dakota ... "we can barely read the writing" I was told ... and these customers were upset. We took away their products, and we took away the channel they liked to shop in.

However, as a business, we were fine. We traded a 77 year old catalog shopper for a 37 year old e-commerce shopper. And we told the 77 year old she could still shop online (which she obviously didn't want to do).

We did the same thing that NBC is doing to the million soap opera viewers that are left. 

These are the Days of Our Lives.

August 23, 2022

Can I Show You Something?

Can I show you something?

"Engagement" is considered a best practice. Get people to interact with your content.

Last Friday I shared a story with you about an NFL punter who is going to change how punting is viewed. That post generated 155 clicks to the links in the post, and generated zero inquiries about project work.

On Monday/Tuesday, I shared catalog marketing themes (here and here). The posts generated a total of twenty (20) clicks to the tables, generated two (2) business inquiries about project work, and generated five (5) unsubscribes from vendors who presumably were upset that I wasn't giving them enough relevant/digital free information to help their product offering.

Which article was more "engaging"?

Which article was more appropriate for my business?

Now translate this case study to your business.

What do you do that is "engaging" but doesn't cause your customer to purchase?

What do you do that is "boring" but generates business?

Where should your time be spent?

August 22, 2022

Big Difference

Aside from the industry telling you that catalogs have a 100% open rate because you have to touch them to throw them away, there is science involved in determining "who" should receive a catalog.

Here we have three customers who are identical in terms of corporate value ... each is expected to spend $50 in the next year. Exactly equal / identical customers.

However ...

... the first customer will spend 80% of next year's revenue "because" of catalog mailings, the second customer will spend 50% of next year's revenue "because" of catalog mailings, and the third customer will spend 20% of next year's revenue "because" of catalog mailings.

Let's look at the optimal strategy for each customer ... going from 20% organic first to 50% organic second to 80% organic in the final table.




Tell me what you observe?

20% organic rate:  14 catalogs is optimal. $53.20 in sales, $14.14 in profit.

50% organic rate:    5 catalogs is optimal. $41.41 in sales, $15.01 in profit.

80% organic rate:    1 catalog is optimal. $42.89 in sales, $18.60 in profit.

Yeah, your mailing decisions are fully dependent upon accurate measurement of the organic percentage. And you cannot possibly know your organic percentage if your focus is on "matchback analytics". You have to execute frequency tests and mail/holdout tests to get there, and you're best off to execute frequency tests in combination with email marketing frequency tests (and to be honest, with market-based paid search on/off tests and display on/off tests etc.).

Ask your favorite vendor if they produce the three tables (above) for every single customer when they are scoring your customer file. If the answer is yes (I know of one vendor who does this routinely), consider yourself blessed. If the answer is no, email me now (kevinh@minethatdata.com).







August 21, 2022

Catalog Modeling: Optimal Annual Contacts

I'm working on three (3) catalog modeling projects over the next six weeks. These projects have become a lot more important than in the past few years for three reasons.

  • Response is down due to the end of the COVID-bump.
  • Catalog costs are up and paper availability is sketchy.
  • Cost of goods sold are up.
Those three factors reduce the optimal number of catalogs to mail. Here's an example. Two years ago this company averaged $0.70 per catalog mailed and 45% of sales flowed-through to profit. An optimal catalog mailing table might look like this, for a customer with a 50% organic rate.


The optimal strategy isn't the twelve catalogs currently being mailed, but is instead 5 catalogs, though anywhere between 3 catalogs and 10 catalogs is close to optimal.

Now, what happens when the average cost of a catalog increases to $0.75 and the profit factor decreases to 40% due to a higher cost of goods sold?



Oh oh. The optimal answer now happens at 4 catalogs, though anywhere between 2 catalogs and 7 catalogs is close to optimal.

So, here's what we know from this example.
  • The company mails 12 times per year, yielding in this case $11.00 profit under current circumstances (the prior answer, two years ago, was $14.10 profit).
  • Two years ago, an optimal answer was between 3 and 10 catalogs.
  • Today, with different cost constraints, an optimal answer is between 2 and 7 catalogs.
You probably want to know this stuff, right?

So join the companies that are getting way ahead of the curve on this topic ... I have a slot that opens up October 1 ... be the first to obtain that slot.






August 17, 2022

Punting

If you like punting in the NFL, then you're going to want to pay attention to Matt Araiza (click here).

Here he is in his first NFL pre-season game ... 82 yards on the punt.

Every once in a while, somebody comes along with a different approach (watch his punting style, it's not what you usually see). The pundits will find reasons to not support the new approach. They always find reasons to not support the new approach.

You probably have ideas for new approaches to your business challenges. You've probably had somebody above you say "we tried that, it didn't work" or "we don't have budget for that" or "your idea is stupid".

Maybe your idea isn't great.

But what if it is great?

Find a way to test your ideas.

August 15, 2022

Why Does It Matter?

Ok, we talked about Paid / Owned / Earned Media yesterday. But why do the terms matter?

Let's assume you have a really good social media team and you have 600,000 followers. Each year 10% of that audience become first-time buyers. Your social media expenses (staffing in particular) are buried in your fixed cost line on your p&l, so the new customers (from a variable cost standpoint) are virtually free.

Assume that you generate the following amounts of variable profit per year after acquiring the customer:
  • Year 1 = $16.
  • Year 2 = $12.
  • Year 3 = $8.
  • Year 4 = $6.
  • Year 5 = $4.
Now, let's pretend that you acquire customers at the following profit-per-new-customer levels.
  • First 60,000 = $2 Profit per New Customer.
  • Next 60,000 = Lose $8 Profit per New Customer.
  • Next 60,000 = Lose $18 Profit per New Customer.
If you were starting your business from scratch, this is what your five-year profit trajectory would look like:


Using this strategy over five years, you lose $7.2 million acquiring customers, yielding $23.0 million in total variable profit over five years. Nice!

Now, let's say you have a credible Earned/Owned strategy, and instead of having to acquire 60,000 customers a year at a loss of $18 per customer, you acquire 60,000 customers a year at no cost. How does that change the story?


Instead of losing $7.2 million acquiring customers, you lose $1.8 million acquiring customers. Over five years, you are $5.4 million more profitable.

Or, you could employ the same paid strategy AND enjoy the benefits of your owned/earned strategy.



This tactic works best ... you generate $33.1 million in profit over five years from your acquisition efforts.

In this example, what works best?
  • $33.1 million from Paid, Earned, Owned.
  • $28.4 million from Reduced Paid, Earned, Owned.
  • $23.0 million from Paid.
When I spent the 2016-2019 timeframe telling anybody who would listen why low-cost / no-cost customer acquisition was so important, I was referring to the tables above. When people vehemently disagreed with me? They didn't have the math to demonstrate what would happen.

Run the math.

Hire me if you can't run the math yourself (kevinh@minethatdata.com).

August 14, 2022

Going Back to 2016

Way back in 2016, I gave a series of presentations about Customer Acquisition. As I've told you before, the audiences HATED the presentations. HATED them. Studious Millennials pulled up websites on laptops to criticize me mid-presentation ... Jaded Baby Boomers just shook their heads and told me "THAT WON'T WORK".

My favorite moment (and by favorite, I mean most disappointing) came when I presented to a room full of Business Owners and Executives. I finish the presentation. A CEO from one company (somebody many of you know) responded unfavorably, with plenty of criticism. But his criticisms were reasonable ... wrong ... but reasonable. Then a guy in a cowboy hat raises his hand.

  • "I've run my own business for thirty years and I've done just fine doing just about the exact opposite of everything you explained today. Thanks for the ideas, I'll just continue to do the opposite of what you recommend".

As he finished his comment, the room giggled and many heads nodded up-and-down.

Some of the people in that room back in 2016 reached out in 2022 ... "it's getting really expensive to acquire customers, what should we be doing to minimize costs so that we can meet our budget?"

The grumpy side of me wants to say "how about listening to me in 2016 instead of giggling?"

The practical side of me fully empathizes with the line of questioning. You have owned media, earned media, and paid media, and the person asking the question is frustrated because paid media isn't working so well.

Owned Media and Earned Media require multi-year investments in both money and energy. The work you do in 2016 pays off in 2022. Because we measure ROI via short-term tools (i.e. most digital analytics platforms), we get pushed into a Paid Media focus.

And that, dear readers, is wrong.

August 10, 2022

At The Lowest Possible Cost

Most of the e-commerce businesses I analyze show a downstream profit profile that looks something like this:

  • Year 1 = $14.
  • Year 2 = $9.
  • Year 3 = $5.
  • Year 4 = $3.
  • Year 5 = $2.
  • Five Year Total = $33.

This profile dictates your customer acquisition strategy. You simply cannot invest in expensive new customers because you never generate enough profit to fuel future success. Your new customers need to be profitable, or acquired at a small loss. You might be able to afford to lose $10 profit acquiring the customer because you make up $33 after five years, but not much more.

The profile above happens when you have a 30% or worse annual rebuy rate. Your customers have no loyalty (usually because they don't need to buy from your merchandise assortment on a frequent basis - it isn't because the customer isn't loyal - it's because you sell something with an infrequent purchase frequency), therefore they generate minimal future profit, meaning you can't spend much money acquiring customers, suggesting you must have a strong owned/earned marketing strategy.

Look at this business ... about 20% of my clients fall into this scenario.

  • Year 1 = $18.
  • Year 2 = $16.
  • Year 3 = $14.
  • Year 4 = $12.
  • Year 5 = $10.
  • Five Year Total = $66.

This business can afford to spend a ton of money acquiring customers! This business could afford to lose $40 profit acquiring a customer because the payoff is certain and generous. This is the kind of business that can afford paid media.

If you don't get long-term payback, you need a strong owned/earned strategy.

If you get a ton of long-term payback, you can pay Facebook/Google forever.

For most of us, we need to acquire customers at the lowest possible cost.

August 08, 2022

Can I Show You Something?

One of the most successful companies I've ever been associated with operates stores and e-commerce. Here are their counts of "omnichannel" buyers in the past five years ... defined as 1+ purchase in e-commerce in the past year and 1+ purchase in-store in the past year. Tell me what you observe.

  • 2022 = 15%.
  • 2021 = 17%.
  • 2020 = 8% (Covid year, stores were not open for 6 weeks).
  • 2019 = 18%.
  • 2018 = 19%.
This brand grew significantly over the past five years.

This brand nearly doubled annual profit in the past three years.

The percentage of customers who buy from stores and online decreased over time, albeit modestly.

This brand technically becomes more successful as it generates fewer customers who buy from both stores and e-commerce in the same year.

There are many ways to be successful in business.

You don't need to do what trade journalists and research brands demand of you.

Instead, sell your best customers stuff they love and acquire customers at a cost that allows you to generate a ton of profit in the next few years. Do that and you'll be just fine.



August 07, 2022

Future Value

This is a graph I create for my client base when they request a File Power project. I measure future sales as a function of time since acquisition.


The relationship (in this case) looks nearly linear - it is not, but it is one where the customer keeps spending money year-after-year.

Here's the relationship, summarized in tabular form.


Tomorrow we'll extend the table to profit. This company is a good one - there is sufficient downstream profit to grow this business via customer acquisition.

You likely produce this table for your company. The table (and the one I'll share tomorrow) form the basis for your investment strategy. 






August 04, 2022

A Version of the 80/20 Rule

Here's the share of next year's sales from existing customers (y) as a function of customer file quality (0.1 = great customers, 1.0 = worst customers).




4% of the customer file delivers 29% of next year's housefile sales.

20% of the customer file delivers 65% of next year's housefile sales.

50% of the customer file delivers 88% of next year's housefile sales.

This client needs to take the top 4% of the housefile and do SOMETHING to reward them. Not points. Not a loyalty program. Something meaningful.

I mean, the relationship above is for sales. When I plot profit? Woo-wee!

Having great customers helps your customer acquisition efforts. Great customers generate so much profit that their profit rolls into your long-term value calculations - and long-term value dictates how much you can spend to acquire a customer.

It's all circular, and it's all important.

August 02, 2022

Email is Different

Yesterday I talked about digital marketing in general, and the fact that one business generally attributed digital marketing efforts to either the very best customers or new customers.

Email is different. For the same business I discussed yesterday, here's what I learned.

  • 31% of email sales were attributed to the best 4% of the customer file.
  • 61% of email sales were attributed to the top 16% of the customer file.
  • 5% of email sales were attributed to new customers.
The 61/16 ratio cited above is not uncommon. You're using a virtually free marketing channel to speak to your best customers.

Here's a fun one for you ... I once analyzed the results of an email mail/holdout test. In the mailed portion of the test, customers were much more likely to have orders attributed to Search and Facebook and Display. The very act of enticing a customer to buy via email marketing caused customers to presumably comparison shop elsewhere, touching other channels (and racking up additional expense) before (maybe) purchasing. In other words, email marketing was not virtually free. Email marketing caused expenses to increase in other channels.

Isn't that fun!

Email, as you already know, is entirely different from every other form of marketing. Give it 3% of your mental bandwidth and miss out on File Power, profit, and the audience that it serves (i.e. your best customers).

August 01, 2022

That's How We Get Our New Customers

At least that's what the Executive said when I asked him about various online marketing tactics.

A look at his customer file told a different story.

  • 19% of his digital marketing budget was attributed to the top 4% of his customer file.
  • 31% of his digital marketing budget was attributed to the 5th percentile to the 24th percentile of his customer file.
  • 24% of his digital marketing budget was attributed to new customers.
In other words, it was the very best customers consuming online marketing tactics, or new customers consumed online marketing tactics.

Sometimes we just miss the point of everything we're doing. We're not "bidding on a keyword". I mean, that's the tactical thing we're doing. What is the strategic thing we're doing? It's like we're Billy Beane in Moneyball yelling at the scouts "What's the problem we're trying to solve?"

We're trying to increase File Power. And for some reason our best customers know we sell widgets and are out there on Google searching for widgets anyway. What's the problem we're trying to solve when that happens?? Once you answer that question, the tactics employed to solve the problem are different than "bidding on a keyword". Obviously. We just don't ever want to answer the question, do we?

July 31, 2022

File Power In Practice

So I'm exchanging emails with a digital marketing expert - this person is excited because he acquired new customers at a $10 ROAS.

Now, I already knew the answer (as do you), but I asked the expert if that was a profitable outcome?

His response? "I don't know. I just know that's a good ROAS".

In practice, you have an existing customer base. The existing customer base is capable of spending "x", you'll spend "y" marketing to the customer, yielding "z" dollars of profit.

Profit is a function of the life stage the customer is in. Somebody acquired customers five years ago, and the work that somebody performed back then ends up in your pocketbook via a bonus today, because those customers keep generating profit.

In practice, we want a powerful file. We want as many customers as we can afford, and we want them to generate as much subsequent profit as they can possibly generate. When we figure out ways to generate more profit out of a customer, we are allowed to spend more money acquiring customers ... this behavior is circular because then we have more customers, generating more File Power, allowing us to acquire even more customers.

In my projects, I keep seeing instances of companies that cannot acquire enough new customers to grow. This seems like a Customer Acquisition problem (and it most certainly is a Customer Acquisition problem), but it is also a Customer Loyalty problem. When we cannot figure out how to generate more profit out of a customer, we have to back off on Customer Acquisition to make sure we generate enough short-term profit. Our Customer Loyalty problem accelerates our Customer Acquisition problem.

What drives Customer Loyalty more than anything else?

Merchandise Productivity.

In other words, there's a lot of interconnected pieces. If we take our eyes off of any one of the connected pieces, we lose profit, which hurts our ability to acquire new customers, which shrinks the customer file, which lowers File Power, which costs us more profit, and the circular problem continues iterating through the business.

Everything we do impacts File Power.

So yeah, we want to study File Power, don't we?

July 28, 2022

Updated Project Offering

To reflect the style of work I'm performing in 2022, I updated my "Hire Kevin" page. Click here for details.

I do have an opening for a project beginning August 15, so if you were thinking about something regarding customer behavior, let's talk.

July 27, 2022

The Power of File Power

Nice use of words, huh?

Here's something that I frequently see in my work. Look at rebuy rates by segment.

In each segment, rebuy rates are identical on a year-over-year basis.

However, rebuy rates in 2022 are 26.3% whereas rebuy rates were 24.3% the year prior.

This happens because of File Power ... you have 50 more 1x buyers, 200 more 2x buyers, and 250 more 3x+ buyers in 2022. Those customers pay you back.

Management cannot take credit for the increase in Rebuy Rates.

Well, that's not entirely true ... the increase in Rebuy Rates isn't because of anything they've done special this year, it's because of the hard work done by the entire company in previous years.



A Little Productivity Goes A Long Way

Let's use the world of Google as our window into the magic of merchandise productivity. Ok, you spend $15,000. You get 20,000 clicks. Co...