$19.99 on Your Website, or $15.99 on Amazon? Same Product

Time for a little bit of marketing theory for you.

I won't mention the brand name here ... I'll get all sorts of emails filled with theory and none with reality if I do.

However, this brand sells replacement accessories.

• $19.99 on their own website, with 10% off if you sign up for email marketing campaigns.
• $15.99 on Amazon for the exact same product.

Think about the tax you have to pay Amazon for access to "their" customer. That tax eats into the $15.99 selling price, correct?

Let's assume that the cost of goods is $5.00. This means you might make $15 selling the item on your website, or you might make $6 selling the item on Amazon ... you give up margin dollars by selling for a cheaper price on Amazon and you give up margin dollars for the tax that allows you access to Amazon customers.

But you have to purchase the bags, regardless. So technically you don't need "access" to Amazon customers. Right?

We make tradeoffs every day. We seem pre-disposed to pay third parties taxes. Next time you are faced with yet another tax to a third party, ask yourself why you are paying the tax? Have a good reason, ok?

P.S.: This is an old-school story from 2001. I'm VP of Database Marketing at Nordstrom. Two members of my team are traveling with me to the "Catalog Conference" ... yeah, that used to be a thing. We'd meet with other brands, discussing how we were going to rent/exchange names with each other. In other words, we were granting access to our customers ... oftentimes for a tax.

The soul-breaking moment in this process was a meeting myself and two of my Managers were having with L.L. Bean. These meetings were occasionally (often) held in hotel rooms. My managers and I enter room 1433 or whatever room the meeting was in and we were greeted by thirteen individuals ... three from L.L. Bean and ten others ... list representatives from L.L. Bean and Nordstrom. To recap.

• 3 Employees from L.L. Bean.
• 3 Employees from Nordstrom.
• 10 Individuals representing the list brands that represented L.L. Bean and Nordstrom.

These are the moments you realize that taxes are in play. We were spending money, and that money was trickling through the ecosystem. Of course, that was old-school cataloging ... those meetings were "disrupted" by the co-op model of everybody dumping names/addresses into a common pool and then bellying up to the bar to take whatever you wanted at $0.06 a pop. And that business model was "disrupted" by Google/Facebook ... two brands collecting an awful lot of tax revenue still, in 2023.

Tax dollars have to provide a disproportionate return on investment. I once had a CFO who questioned a line item in my budget where I was paying a list brand more than a million dollars. He wanted to know what he got in return for that investment? Good question! I showed him a five-year forecast of where our brand would head if we didn't make that investment, and that was the last time the line item was questioned. If you have to pay taxes, pay them in cases where you make a disproportionate return on tax ("ROT").

The JBL PartyBox 310

When you live in Maricopa County, you largely live outside. Phoenix is the sunniest large city in the world.

If you live outside, you entertain outside. If you entertain outside, you need music. If you need music, you need a good outdoor speaker - not one of those tiny bluetooth speakers that, at best, provide ambient music for a gathering of three people. You need something that could be heard in Yavapai County if necessary.

Two-and-a-half years ago I shelled out cash for a JBL PartyBox 110. This thing sounded so good that numerous neighbors also purchased the speaker.

And yet ... it didn't sound "perfect". On a scale from 0 to 100, it sounded like an 88. That gnawed at me. Welcome to capitalism, Kevin!

Fortunately, JBL thought through this issue ... they anticipated that idiots like me would "want more". They complement their 110 model with better units ... the 310 ... the 710 ... the 1000 ... and the Ultimate! Each unit is incrementally better, and incrementally more expensive!

Now, the 110 and 310 can be plugged in or played via battery. The battery is so darn cool! You can pick up the speaker and place it by the pool or in your outdoor seating area. It can bluetooth to your tablet in your house if you want. The 710 ... it's not portable and there is no battery, but there is a video where a guy plays it at 100% volume, distortion free, and can hear it from four hundred feet away ... that's more than a football field. So yes, the 710 sounds incredible (I can't imagine what the 1000 or the Ultimate sound like), but for a residential back yard, it's probably not worth spending a few hundred extra dollars.

The 310, however, has proven worth spending $150 more. In my opinion, the sound quality improves from 88 to 94. For the average person, that level of improvement is nothing ... it's not worth spending extra money. For me, it's completely worth spending the extra money. The bass is better ... you can feel it in your chest if you turn the volume up. You can hear the speaker from several houses away ... good for the owner, bad for the neighborhood.

There are dozens of online videos comparing each speaker ... you're told to put your headphones on so you can "hear" the difference. These are outdoor music enthusiasts performing free marketing on behalf of JBL.

This brings me to your business.

Online, you'll read thousands of experts who tell you how to leverage marketing to improve your business. Almost none of the experts tell you how to leverage merchandise/product to improve your business. There's a good reason for this. It's HARD work, and it is "localized" work, meaning what works for one business might not work for another business. In other words, the JBL strategy of line extensions works for JBL ... but could it possibly work the same way for Orvis? Maybe yes, maybe no. Could it work for Coach? Absolutely!!

It isn't easy to get customers to so enjoy a product line that they'll unnecessarily spend incremental dollars on "better" replacement items while performing marketing for you free of charge. But if you have a product line that can be extended with better items that cost more ... and if you have a portion of the customer base that CARES ... who willing spend more money to satiate a need ... who will also testify about satiating that need ... well, now you have something. You are now able to leverage product/line extensions to perform marketing functions at no cost. Now you'll acquire new customers without having to pay Facebook a tax.

If we don't have a product line that performs this function, well, maybe that's part of our failure as shepherds of the brands we manage, right? It's one thing to say WINTER SALE, TAKE 75% OFF!! It's quite another thing to have a random YouTuber explain your product line for you causing customers to spend money they wouldn't normally spend to acquire improved products that aren't improved enough to truly matter.

In 2024, you'll want to capitalize on this concept. Spend less time paying taxes to Google and Facebook. Spend more time exaggerating line extensions that are interesting enough to cause people to testify on your behalf.

Boxing Day

In the old days, I'd ask my readers to switch roles on Boxing Day ... here's a link from something I wrote back in 2006 asking readers to submit content that I'd publish. The reader could submit something and have access to 2,500 individuals.

You'd think a vendor ... any vendor ... would have taken advantage of the opportunity to market to their prospects for free.

That never happened. Given the choice between creating helpful content in exchange for access to 2,500 highly qualified prospects or paying Google a tax, vendors paid the tax. You'd likely pay the tax to a third party as well.

How many opportunities does your brand pass up because the opportunity would require some work, and because the opportunity is "non-traditional" and "unproven"?

There's a reason the service provider community loves the "omnichannel" approach to marketing. You, the reader, are constantly paying taxes. You pay your paid search vendor a tax to have the paid search vendor pay Google a tax, then you pay an attribution vendor a tax to measure how effective the tax was that you paid a vendor to pay to Google. You pay an influencer a tax so that the influencer says something on the socials causing the tax you pay the socials to drive traffic to your site that the tax you pay your attribution vendor measures.

The sources we pay taxes to need to perform better every year to prove their worth. When they don't perform better, we struggle. If we're dependent upon these sources, our businesses suffer.

If new customer counts are in decline and you are highly dependent on tax collectors for new customers ... well, that's a strategic blunder, isn't it?

Merry Christmas!

For the eighteenth time ... eighteenth time (showing up every day matters, folks), I wish you a Merry Christmas!

That was my corgi back in 2006 ... Bert! The happiest dog that ever lived, period.

Now we have Dash, and he's not the kind of dog that takes to a photograph in the manner Bert did. Dash has other gifts.

Yes, this relates to your business.

You have other gifts. You are not Amazon. You are not Target. You are YOU. Take full advantage of your gifts. Ask your employees what your company's gifts are if you as a Leader don't know them. Then capitalize on your gifts!

There is a Reason it is Called a SmartTV

Here you go (click here).

Who knows if any of it is true or not?

If you want to do a test, tell your phone and smart devices repeatedly that you are hungry for your favorite fast food establishment if you have one. "I'm really hungry for Taco Bell". Say it a few hundred times and see what happens.

Just Like Sports

The parallels between sports and merchandising ... they are many, and the lessons apply to our world.

Orvis is an example of a "draft and develop" philosophy. Product development is critically important - without the ability to develop your own winners, you're sunk.

If you are Nordstrom, you are largely dependent upon Free Agency. There are items and brands that you can pick from. You pay a price, of course ... in football, your salary cap limits what you can do. In retail/e-commerce, profit limits what you can do. Here, Nordstrom partners with L.L. Bean. L.L. Bean takes on the product development role, and if the merchants at Nordstrom are smart, they are picking good "free agent" items.

Neither approach is right/wrong ... both approaches have benefits and consequences.

When Orvis fails, it might take 2-3 years to recover. It's like being the Green Bay Packers ... if you don't draft well, look out. Regardless, Orvis largely controls its own destiny.

When Nordstrom fails, recovery could be fast if third-party vendors have alternatives that work. Still, Nordstrom is dependent upon third-parties. If customers don't like the Coach Tabby Pebbled Leather Crossbody Bag, Nordstrom suffers. It's not unlike being the NY Jets ... putting all your chips in the Aaron Rodgers camp.

Marketing/messaging is different in each case. Orvis develops products for the customer. Nordstrom selects products for the customer.

Know who you are, know your strengths and weaknesses, and act accordingly. Just like sports teams do.

Oh

Give this a few moments of your time today.

Great Moments in Omnichannel History

This is the Amazon + USPS episode (click here).

Try A Compliment

I was in a meeting last week where an individual tore through people and processes, lavishing criticism as if being paid by the critique.

After the meeting, I posted this poll on Twitter (click here). It only received 35 votes, but the outcome of the vote is what is interesting.

• Based on the structure of the question, it would take 10 compliments to equal the damage done by 1 criticism.
• One individual commented that "people are soft".

About a decade ago, I was in a meeting ... the department head joined me in the bathroom after causing a staff member to cry. What did this person say about it?

• "Why are people so soft?"

Not long after that meeting, the professional lost many members of the staff the professional was responsible for.

I realize the pundits like it when a "strong leader" demeans others. Demeaning others leads to clicks, resulting in people getting paid or earning "engagement".

If you want to be an effective leader, try offering a compliment. Catch people doing good things, and say something about it.

Zulily

Born 2009/2010, Dead 2024 (click here).

This is a "compressed life" if there ever was one. From birth to public offering to sale to an established brand to sale to private equity to the end in a decade-and-a-half.

The day Amazon delivery trucks arrived in your neighborhood was the day that traditional e-commerce ended. Unless each and every one of us have a compelling differentiator that causes a customer to stay away from Amazon, we'll lose out to those delivery trucks sending inexpensive merchandise to our door just hours after we ordered it.

Traditional catalog brands were hobbled by e-commerce and are now being stymied by paper / print / postage partners.

"Omnichannel" retail was crippled by e-commerce. I mean, Macy's might be taken private and not for what they sell but for the real estate, well, that tells you everything you need to know.

E-commerce was thumped by Amazon. Zulily. Stitch Fix is falling apart.

We're headed in interesting and unusual direction in 2024-2025. Put your creativity hat on. This problem won't be solved traditionally. Nope.

P.S.: As we wind down 2023, I've been blessed to work with a significant number of newer brands. Everybody focuses on the big trees in the forest ... down at ground level, business is being reinvented. There are many positive stories coming, folks.

Upcoming Inflection Points

I spend several pages in Hillstrom's Business Review (click here) discussing Inflection Points.

The next two weeks represent a significant Inflection Point. Customers who purchase during the next two weeks and are not among your loyal buyers are "different" than everybody else. They are much less likely to purchase during the rest of the year, on average. Use your free and nearly free communication channels to speak with these customers during the rest of the year ... use expensive channels (i.e. print) to speak to those customers in Jan/Feb/Mar.

Yes, please, collect every penny of profit you can on orders placed over the next two weeks.

Then stop spending pennies on customers who are not interested in you early in 2025. The next two weeks represent an important inflection point.

Middling Items

Winners are obviously important, but your middling items ... those performing "in the middle" of your assortment, well, they are important as well.

I looked at items in the middle from five years ago, measuring the fraction of items that were future winners.

• Year 4 = 3%.
  
• Year 3 = 3%.
• Year 2 = 6%.
• Year 1 = 5%.

Not many advance to winning status. That's the challenge many of us face. It is hard, darn hard, to identify items that have the potential to be best sellers. As a consequence, we need many new items each year. With more new items, we have a good chance of having some that become winning items.

Too often, I work on projects where new item development was cut in half ... "we've got to squeeze more juice from the lemon." That works until all of the juice has been squeezed from the lemon. 

Then you need a new lemon!

Life Stages of an Item

You'll constantly hear about Customer Lifetime Value (CLV or LTV or whatever third parties want to call it). Customers go through different life stages ... from new to loyal to disinterested. Lifetime Value measures the future potential of a customer based on life stage.

Your merchandise goes through the exact same process. When you have a winning item, one customers love, the item has future value, just like a customer has future value.  Call it Merchandise Lifetime Value ... MLV!

Here are winning items from a brand from five years ago. Look at the sales from these items in subsequent years.

• Year 5 = $5.4 million.
• Year 4 = $5.8 million.
• Year 3 = $4.9 million.
• Year 2 = $3.7 million.
• Year 1 = $2.3 million.

You can argue that in the next four years winning items have a MLV of $16.4 million.

Each winning item has it's own trajectory. Own life stages. Here's an item that is dying. It was a winner five years ago. In the information below, I measure demand per thousand annual customers.

• Year 5 = $382.
• Year 4 = $248.
• Year 3 = $72.
• Year 2 = $43.
• Year 1 = $20.

Four years ago your merchandising team should have seen the writing on the wall, searching for a replacement item.

Other winning items have different trajectories. Again, I'm reporting demand per thousand annual customers.

• Year 5 = $398.
• Year 4 = $405.
• Year 3 = $336.
• Year 2 = $332.
• Year 1 = $462.

You'd craft entire merchandising stories around this item ... it is showing no signs of weakness. This item is in the prime of it's life. This item is printing profit for your brand.

Know the life stage of each item you sell. This style of marketing is the complete opposite of HURRY TODAY, 70% OFF EVERYTHING! This is hard work, but it protects the future health of your business.

What Is The Message?

Look at this sequence of email campaign subject lines from last week, sorted by most recent to oldest.

• 40%, 50%, or 60% off everything. 
• 50% off your order.
• Get up to 70% off everything.
• Save up to 70% on everything.
• Up to 70% off.
• Only hours left, up to 70% off everything.
• This is it. Up to 70% off everything.
• 60% off sitewide?
• Today only, 60% off sitewide is back.
• Cyber Monday early access. 60% off everything.

Tell me what the message is that this brand wants to communicate?

Winning Items

It's been nearly a decade now since I spent time focusing on what are called "Winners".

Winners are your best selling items. Winners are really, really important. They generate a disproportionate amount of your profit.

Winners are different for different brands. If you manage a fashion brand, a winner might be a new item that explodes in the first month of life, generates sales for two months, and then is discontinued. For another brand, a journey is involved ... new item that performs well for a year, becomes a contending item in the second year, and then is a winning item for years 3/4/5/6 before slumping and ultimately being discontinued in year nine.

A professional once asked me if $0.11 per email delivered was a good metric or not? I asked the individual if they feature new items or winners in their email campaigns? The person couldn't answer the question. That is one of the "sadnesses" of 2023. It would be like a chef asking a diner if the chicken parm tasted good, and the diner said "what spices did you use?" and the chef said "I don't know". In other words, if you populate email campaigns with winning items, you might generate $0.18 per email delivered ... if you populate email campaigns with new items, you might generate $0.08 per email delivered. Performance isn't a function of the channel. Performance is a function of what you show the customer.

If you are a marketer worth your chops, you spend a disproportionate amount of time focusing on two things.

1. Promoting new items that have potential so those new items have a chance to become winners.
2. Promoting winners to squeeze as much profit out of your customer as possible.