February 27, 2024

How Can A Product Or Category "Cause" A Customer To Become More Valuable?

I'll go back to my time at Nordstrom ... two decades in the rear view mirror these days.

Our Accessories merchant was a force of nature. When hand bag price points were around $200 she pushed them up to $400, and did not care one tiny bit what people thought (people thought she was nuts).

She was not nuts.

She understood back then that customer wanted a handbag for $400 .... and four months later they wanted ANOTHER handbag for $400. Those additional handbags were purchases that wouldn't have otherwise happened, incremental to the customer and to the business. Perform a Merchandise Residual Value analysis on her handbags and you'd see that her handbags "caused" customers to become more valuable.

That doesn't mean you should keep selling the same handbag in perpetuity.

It means somebody with merchandising smarts works with somebody with marketing smarts to exaggerate the importance of handbags.

That's a solid use of Merchandise Residual Value.

February 26, 2024

Merchandise Residual Value in Practice

Here are the top ten selling items for the past year for a brand ... in this example (for the sake of simplicity, all items existed the year prior as well), I illustrate total sales for each item, then list MRV (merchandise residual value) for each item (i.e. the amount of future value that is added to each customer who buys that item because the customer buys that item), and then a sum of last year's sales and total MRV for the next year. Yes, you want to sell items that sell well and add value to customers in the future.


This is the look you should have on your face when you look at Item #6.



Item #6 is a problem child. It is a low-priced item ($9.99) that sells the second-most units of any of the top ten sellers. But for every $9.99 unit sold, MRV is a negative $4.75, meaning the customers who purchase the $9.99 item spend $4.75 LESS in the next year as a consequence.

In other words, the item is a loyalty killer.

If you take last year's sales and what you lose in the next year by selling that item into account and take the sum of the two metrics down to profit, you will learn that this best selling item is actually UNPROFITABLE to your brand.

I'm guessing you want to know these facts for your business, right?

February 25, 2024

Oh, It Adds Up

Let's look at an example.

  • You have a winning item.
    • It sold 50,000 units last year at an average of $30.00 each, for $1,500,000 in sales.
  • However, this item has negative Merchandise Residual Value ... negative $10.00 in the next year.
    • This means the item will cost your brand $10.00*50,000 = $500,000 next year.

Is the item truly a winning item? That's a good question! It generated $1,500,000 in sales, but it will cost your brand $500,000 next year. In other words, it's actually a $1,000,000 item.

Every single one of you manages a brand where this happens. Every single one of you.

You can't stop customers from buying that item.

But as a marketer, you are under no obligation to FEATURE that item, now are you?

If you aren't already performing this style of work, contact me now (kevinh@minethatdata.com) and we'll get started, ok?

February 22, 2024

Lots of Choices!

I updated my product offering (click on the image below or click here to visit my Hire Me page).



There are several updates here.

  • I re-introduced my CATALOG MODELING project, given how popular it was over the winter when I wasn't even offering it. Many (MANY) catalog brands are going through a dramatic transformation, forced upon them by rising paper/printing/postage costs. In these projects, I calculate the exact number of catalogs to mail a customer annually. You'll save a significant amount of ad cost, you'll increase profit in the process.
  • MERCHANDISE DYNAMICS:  This is going to be a project that I roll out over the next few weeks. There is a significant shift among e-commerce brands to fully understand the interaction between customers and what the brand sells. You've seen some of my work over the past 1-2 weeks. Lots more to follow.
  • HILLSTROM'S CHECK-UP:  You asked for this. You want a quick-and-tidy evaluation of your business that can be executed within 1-3 days. That's what this project is. I'll combine a few aspects of Merchandise Dynamics with a full Elite Program Run, helping you understand within a few days some high-level issues that are holding your brand back.

Next week? More on Merchandise Dynamics.



February 21, 2024

MRV (Merchandise Residual Value): A Jewelry Example

Yesterday I showed you how Home merchandise negatively impacted how the customer behaved in the future.

Here's Jewelry for the same brand. Tell me what you observe:


Jewelry is generally purchased by customers in the middle of the life stage of the customer. Notice that 35 winners negatively impact customer spend in the future, while 64 winners positively impact customer spend in the future.

For this brand, Jewelry is a positive (on average) on future customer spend.



February 20, 2024

MRV: An Example With Home Merchandise

Home is one of those categories that Executives love, customers allegedly love, and analysts don't love.

Why?

Because buying Home product stalls customer evolution.

Here's a grid for Home products within this brand.


This table is just plain scrumptious.

Who buys Home Merchandise? In this case, it's generally customers in the middle of their life stage with the brand, but mostly among loyal customers.

So, our best customers are generally buying Home merchandise.

Do winning Home items help/hurt future customer spend?

  • Winning Home Items HURT future customer spend.

I see this happen a lot - have been watching this for more than three decades. Once that customer buys sheets or furniture, the customer doesn't need to buy again for awhile - even though you offer other products that the customer could purchase regularly.

As a marketer, you have to be very careful WHO you offer Home products to. You might think you are helping the customer cross-shop your entire brand. If you cause your customer to spend $50 less next year because of it, you've accomplished little and likely hurt the customer relationship.



February 19, 2024

MRV (Merchandise Residual Value): Placing All Those Dots In A Grid

You saw the graph yesterday.


 
The average business professional will glaze over when seeing the data presented in that manner.

Simply the presentation to a 3x3 grid, and you have something.


In total, yes, the counts should be reasonably equal.

Look at a merchandise category, and the story changes. Let's evaluate one such story tomorrow, ok?

February 18, 2024

MRV (Merchandise Residual Value): The Residual Plot

Remember, MRV (Merchandise Residual Value) is the amount of customer spend in the next year caused by each winning item, after controlling for where the customer is in the life stage of the customer when buying the item.

If an item adds value to the customer, you want to feature the item.

If an item causes a customer to purchase less often in the future, you want to de-emphasize the item, right?

Are you calculating this metric?

Here's a residual plot for a brand with more than 70,000 items sold per year and more than 2,000 winners per year.



Items purchased by a customer early in the life stage (i.e. a 2nd or 3rd purchase) don't have a lot of MRV variability ... customer spend in the future is changed by +/- $20, which isn't nothing, but it isn't what we see later.

When an item is purchased by customers buying for the 8th time, on average, future customer spend is impacted by +/- $50. In other words, if a customer is expected to spend $300 in the future and the customer buys an item that harms MRV, the customer trajectory is changed by the item and the customer now spends $250 in the future instead of $300.

The items we sell help dictate how the customer will behave in the future. Why are we repeatedly featuring items that cause customers to spend less in the future?



February 15, 2024

MRV Yields "Some" Bad Items and "Some" Good Items

This is the way MRV (Merchandise Residual Value) looked for the Winning Items at one brand:



Most items act "normally" ... but there are 20+ items that perform terribly (i.e. they deliver customers that, after controlling for the quality of the customer, deliver customers with reduced future value). Conversely, there are 20+ items that perform really well ... the customers who purchase those items are worth more in the future BECAUSE they purchased those items.

It's really, really important to know which items deliver customers that BECAUSE they bought the item are now worth MORE than they would have been previously.

This knowledge changes how the marketer does every aspect of his/her job.

It's that important.

Are you performing this analysis?

If not, contact me immediately (kevinh@minethatdata.com) and we'll get busy.



February 14, 2024

MRV: Merchandise Residual Value

"MRV" is what I call "Merchandise Residual Value". It's the amount of incremental value the item generates on an annual basis, per customer purchasing the item, above-and-beyond expectations.

We control for the LIFESTAGE of the customer buying the item. Here's a sample dataset of six items. For each item, I calculated the LIFESTAGE of the customers buying the item, and I calculated the FUTURE spend customers who purchased the item in 2022 spent in 2023.

  • Winner #1:  Lifestage = 3.00.  Future = $200.00.
  • Winner #2:  Lifestage = 3.50.  Future = $235.00.
  • Winner #3:  Lifestage = 4.00.  Future = $180.00.
  • Winner #4:  Lifestage = 4.50.  Future = $305.00.
  • Winner #5:  Lifestage = 5.00.  Future = $285.00.
  • Winner #6.  Lifestage = 7.00.  Future = $400.00.
Let's graph the relationship.


There's a clear relationship - if items are purchased by customers later in the LIFECYCLE, those items produce better Merchandise Value.

That's not what we are looking for.

We went Merchandise Residual Value (MRV) ... the difference between the points on the graph and the orange line.

The equation is a straight linear Ordinary Least Squares Regression equation.
  • $34.63 + $51.75*(LIFESTAGE).

For each item, we know the FUTURE spend of customers buying the item, we know the predicted amount of future spend, so the residual is FUTURE - PREDICTION.

  • Winner #1:  Lifestage = 3.00.  Future = $200.00. Pred = $189.99. MRV =  $10.12.
  • Winner #2:  Lifestage = 3.50.  Future = $235.00. Pred = $215.76. MRV =  $19.25.
  • Winner #3:  Lifestage = 4.00.  Future = $180.00. Pred = $241.63. MRV = ($61.63).
  • Winner #4:  Lifestage = 4.50.  Future = $305.00. Pred = $267.51. MRV =  $37.50.
  • Winner #5:  Lifestage = 5.00.  Future = $285.00. Pred = $293.38. MRV =  ($8.38).
  • Winner #6.  Lifestage = 7.00.  Future = $400.00. Pred = $396.88. MRV =   $3.12.


Which item has a poor MRV?  Winner #3 does. At an average LIFESTAGE of 4.00 orders, the item should produce customers worth $241.63 ... instead it produced customers worth $180.00. MRV is negative ... -$61.63.

This is so ... darn ... neat!!

So ... darn ... neat!!

If you are going to feature merchandise in social or email or print, you might de-emphasize Winner #3 because it produces customers who spend less in the future, with an MRV of ($61.63).

Think about all the ways you'll use MRV in your business?

Now get busy using MRV!!

February 13, 2024

Once You've Defined A Winner ...

... it becomes your job to determine if the winning item helps or hurts your brand.

How can a winning item possibly hurt your brand?

Easy.

If the winning item attracts buyers who choose to reduce their spend in the future, then the winning item hurts your brand.

Here's what I want you to do.

Take every winning item from 2022, and perform two calculations for me.

  1. Calculate where in the customer life stage the customer was when the customer purchased the item. Was this the 14th purchase for that customer? If so, create a variable called "LIFESTAGE" and populate the column with a 14 in this instance.
  2. For every item sold in 2022, calculate how much the customer who bought that item in 2022 spent in 2023. Call this variable "FUTURE".

Now, for each winning item, calculate the average "LIFESTAGE" the customer resides in when placing the order. If an item was sold three times and the three customers were on the 1st, 3rd, and 8th order in their LIFESTAGE, the average LIFESTAGE for the item is (1+3+8)/3 = 4.00.

Next, for each winning item, calculate the average "FUTURE" amount the customer who buys the item spends. If the item was sold three times and the three customers spent $0, $0, and $300 in the next year, the average FUTURE for the item is (0+0+300)/100 = $100.00.

Things are about to get interesting!

Tomorrow, we'll get to the interesting part.

And To Think You Are Required To Implement Some Idealistic Omnichannel Strategy To Compete Against This

They've been around about a year-and-a-half ... they advertised during the Super Bowl, and they're going to run circles around the tactics your agency demands you implement ... they're Temu (click here).

February 12, 2024

Defining Winners

My thinking evolved a lot over the past decade. These days, to me, "Winners" or "Winning Items" are items that represent the top half of annual sales (or in many of my projects, I calculate winning items on a daily basis). In other cases, I just grade the top 20% (sales) of items as "A", next 20% as "B", next 20% as "C", next 20% as "D", and the remaining 20% (which is often 60% of items) as "F".

In one project, there were about 2,600 winners out of 72,000 items sold in the past year. In other words, 2,600 out of 72,000 items accounted for half of annual sales.

And so it goes with most of the brands we manage. Apple has the iPhone, then generates less sales from Macs and Watches and Airpods etc. The iPhone is the Winner.

Winners (and sales of most items, for that matter) follow a law of diminishing returns. You can't just keep expanding your assortment and expect sales to grow linearly.

All of us eventually max out our assortment. We do not come up with creative solutions, and our ability to grow via product ends. This is where marketers are called into the equation. Marketers help in two different ways.

  • New Markets/Channels.
  • Improved Perception of the Brand.

Modern marketers could help in a third way.
  • Developing new/existing items into winning items.

Modern marketers work hard to develop customers.

Modern marketers have time to develop winners as well.

Winning items generate the profit that pays our salaries, bonuses, health insurance, 401k, you name it, they're responsible for it. When we have more winning items, we have more of the things we need to be successful.

February 11, 2024

Diminishing Returns In Action

Maybe you don't believe all of the diminishing returns curves you see me present, in one form or another. So let's take a one-day detour into the world of Major League Baseball.

The image below evaluates data for MLB team spend and number of wins the team earned during the 2023 season.



The orange line represents a fitted power function (a*x^b). On the bottom right of the image, you can see how much money you have to spend to buy wins.
  • Going from $100 million in payroll to $150 million yields about 4.4 wins per season ... the difference between a team going 80-82 vs. 76-86, approximately.
  • Going from $150 million to $200 million yields 3.3 wins per season.
  • Going from $200 million to $250 million yields 2.6 wins per season.
  • Going from $250 million to $300 million yields 2.2 wins per season.
So a $100 million payroll team can expect to go 75-87. A $300 million payroll team can expect to go 88-74.

If you were an executive running a baseball team, you'd probably ask yourself if you truly had to spend $200 million to purchase 12 additional wins ... or was there "something else" in the data that could be used to manufacture 12 additional wins???

But notice diminishing returns happening in baseball. Each additional fifty million dollars buys you fewer wins.

The same things happens in your business ... quite literally everywhere. Each additional customer is generally worth less. Each additional product you offer is generally worth less. Each additional marketing dollar is generally worth less.

February 08, 2024

A Small Number of Items Make A Big Difference

Here, we see cumulative annual demand (y-axis) vs. the fraction of the total number of items sold in the past year (x-axis).



Half of all sales (in this case) come from 6% of the assortment.



If you are an analytics professional, you dive into that small number of items. In the case of this brand, it's around 400 items, total.

Four hundred.

How do customers who buy those items behave subsequently?



February 07, 2024

What Your Assortment Looks Like

Have you ever asked your marketing team to describe the merchandise assortment sold by your brand?

You'll get a different opinion than what your merchandising team says, that's for sure.

Now, have you ever asked your analytics team that question?

Your analytics team is not going to have product knowledge, and they sure won't understand how the assortment "communicates the myriad values of the brand proposition" that you'll hear from your marketing team.

But they might start off with a graph of annual sales by item, ranked by 1%-tiles.


This brand sold 72,000 different items last year. Only a handful of the items generated meaningful volume. Somebody on the inventory team has to know that the 55,000th best selling item sold 9 units at $20 each, and has to have the ability to get those items and have them shipped quickly.

Meanwhile, almost all customers have a relationship with about 12% of the items being sold ... about 8,000 items in total.

The analyst, therefore, is going to take a different view of this brand. The analyst is going to focus on +/- 8,000 items ... probably more ... and will make judgements about how those items contribute to the success of the brand.



More on this topic tomorrow.



February 06, 2024

Which Item Do You Prefer As A Marketer?

Item #1:

  • Annual Sales = $100,000.
  • Future Value of Customers Buying The Item = $12.00 Profit Next Year After Controlling For Differences In Customer Quality.

Item #2:
  • Annual Sales = $50,000.
  • Future Value of Customers Buying The Item = $27.00 Profit Next Year After Controlling For Differences In Customer Quality.

I should probably ask if you measure the future value of comparable customers buying each item in your assortment?


February 05, 2024

Corn Yield Wheel

My first two years out of college were not in retail. Noooo. They were spent at the Garst Seed Company in Slater, IA. I analyzed corn and sorghum research plots, trying to identify the hybrids best adapted to different geographic regions. When it came to people and management and Dunder-Mifflin style office politics, I was an idiot. When it came to wanting to learn about maximizing yields, I was a sponge.

On a crisp October morning, one of our Agronomists took me to a meeting to discuss "density tests". Oooooh!

A handful of analysts and agronomists stood around what was called a "wheel test", if I remember correctly. On the inside of the wheel corn was planted at a high density - seeds planted close to each other. On the outside of the wheel corn was planed at a low density - fewer seeds were planted, but were planted farther apart from each other.

Naturally, corn on the outside of the wheel was tall, with huge cobs.

In the middle of the wheel, corn wasn't as tall, but the cobs were nice-sized.

In the inside of the wheel, corn was short, crowded, with tiny cobs. But there were a lot of tiny cobs.

The agronomists showed us that the secret to high yields was to plant the seeds as close as possible without pushing the spacing too close to each other. In a world where you could have 10 huge cobs, 20 large cobs, or 30 small cobs, you wanted 20 large cobs. That's how you maximized yield.

Standing outside on a chilly October morning in 1989, you'd never guess how important that concept would be to marketing strategy in 2024.

In 2024, you have a daily or twice-daily email "blast" ... a daily Facebook post, a daily Instagram post, TikTok videos, YouTube videos, Pinterest content, something on Snapchat because Heather says you need to do it, loyalty mailers, coupons, retargeting ads hounding the customer all across the internet ... it never ends.
  • And yet, your sales don't increase.

How is it even possible that you can speak to the customer a dozen times a day and the customer doesn't spend one penny more than the customer would have spent 20 years ago?

It's the corn wheel.

If you plant a dozen seeds a day right next to each other, the yield of each individual seed is terribly low. And yes, that's what all of us in this industry are doing.

Sometimes when I'm feeling sarcastic, I want to say something like "you have 20 communications with a customer daily and the customer still visits Google and is apparently performing some level of comparison shopping ... what was the point of all of the communications?"

The apparent goal of an "omnichannel communication strategy" is to yell at the customer with a bullhorn from multiple directions. "It all works together, fueling frictionless synergy!"

Alright.

If you could say one important thing or twenty unimportant things ... per day ... what tactic might you test?

February 04, 2024

Diminishing Returns

I am strongly leaning toward creating something regarding Diminishing Returns as a marketing/business concept. Might be a booklet, might be a video series, gonna be something.


This is one of those concepts that is popular but largely unprofitable for somebody like me:

  1. The concept is not well understood.
  2. The concept, when explained, becomes quite popular.
  3. The concept is terribly difficult to monetize in spite of the importance of the concept. In other words, I could have 100 inquiries about the concept and when I say that it would cost $5,000 for me to develop a solution for a client, I'll get zero (0) new projects as a consequence.

If you think a booklet or video series makes sense, let me know (kevinh@minethatdata.com).

If you think some sort of project offering makes sense, let me know and let me know what you think a fair price is for a project offering where I figure out your "diminishing returns" relationship.

Seem fair?




February 01, 2024

Aligning With The Business

Like this.


What happens is you become an overexposed technology leader, because you are trying to convince people to do things that a third party wants you to do - you don't understand the actual business issues your own company faces and you don't understand the technology a third party is trying to sell you.

It's not just the people reading trade journals for inspiration that fail to align with the business.

About a decade ago I sat in an Executive Boardroom. The marketing SVP was not even invited to the meeting - they brough him in at 2:00pm like a relief pitcher. The marketing SVP said a few things about efficient bidding on keywords, open rates on email campaigns, and the raw power of social media. By 2:30pm he left the room.

That's when the CFO looked at me and said "he has no idea what is going on around here".

I spent a couple of decades trying to do what I thought was right for a business. I should have spent that time trying to do what was right for the business.

Align your efforts with those paying your salary.








January 31, 2024

Power

Sure, every company has a CEO, a CFO, a Chief Merchandising Officer, even a lowly Chief Marketing Officer or Chief Operations Officer or Chief Creative Officer ... or even more interesting, a Chief Human Officer or Chief Brand Officer or Chief Customer Officer blah blah blah.

But the real power structure of a company is usually held by a group of individuals.

Three decades ago at Lands' End power was held by merchants, with creative folks having a larger-than-usual chair at the table ... more like a love seat, and finance, they mattered too. Our Marketing Director forced herself into the room by sheer force of will. That was a company that functioned reasonably well.

Eddie Bauer was controlled by Finance and Red Tape.

Nordstrom was controlled by the family (obviously), merchants, and in-store employees. I remember asking to be allowed to speak at a marketing conference. Blake Nordstrom said no, telling me that my job was a "back of the office" job ... he suggested that he loved the work my team did but we were not there to be recognized publicly, we were there to serve.

Have you ever wondered why your ideas go nowhere at your company?

You're probably threatening the power structure of your company.

I wanted a fast computer at Eddie Bauer in 1999. Finance said no. I reminded finance that they didn't know what my skill set was and therefore weren't qualified to say whether I deserved a faster machine and better software. They reminded me that they were Finance and they decided if people spent money or not. I said I'd buy my own computer and connect it to the network. They reminded me that I would not be allowed to connect it to the network. That's power. Finance 1, Kevin 0.

I've always been amazed by my catalog-centric clients ... and the power their paper-partners held. Who do these people think they are? I once created a model to reduce mailings and the Executive said "we'll have to clear this with Monkton Paper (not the real name of the brand)" What? Monkton Paper doesn't get a vote. Visit Dodgeville and the paper folks had an office 1/4th of a mile down the street from Lands' End ... even a decade ago. At Nordstrom the paper guy lived in my community 30 miles away, and I secretly wondered if he moved there to keep an eye on me? (of course he didn't do that ... or did he?). At Lands' End we had access to the private jet if we wanted to visit our printer. There was nothing like a little trip to a corporate airport outside of Warsaw, IN to see the perfect bound printing power of the C.P. Bourg SBM-1 in the wild.

Somebody is going to tell me that I'm an idiot because you needed the SBM-3 to fulfill the needs of a large catalog brand in the early 90s.

Ok, back to reality.

Who possesses all of the power in your brand? If you ever want to do something interesting, these are the folks you need on your side.


January 30, 2024

Power

I get a newsletter from a paper brand - one of their featured articles was about retiring Baby Boomers wanting to collect institutional knowledge about their craft so they could pass the knowledge along to future generations.

The intentions are noble.

The outcome will be straight Darwinian Capitalism. The market will change, and the knowledge necessary to manage the change will survive. The very people wanting to preserve the past were the ones who previously threw it away ... tossing the legacy of the 500 page "big book" in favor of small mailings and eventually an integrated omnichannel digital strategy that simply didn't work. Preserving the institutional knowledge of the past is a form of holding on to power after retirement. There is no power after retirement, there's only the peace associated with not having to ever try to hold on to that power again.

Tomorrow, we'll talk about how "brands" manage power.


January 29, 2024

Moneyball

The movie is on what is left of the cable bundle about three times per week. I watch it each time it is on. Seriously. As long as there are no other social commitments.

There's always the great job offer segment (four minutes). If you are analytically oriented, it's on the Mount Rushmore of movie moments in the field of analytics: 

https://www.youtube.com/watch?v=Jjf1O4jMqeM

The movie is ultimately about institutional knowledge and power. It's really hard to move in a different direction because power does not want you to move in a different direction. For you to move in a different direction, power must shift from where power resides ... to you.

Given where retail layoffs are headed ... given where old-school catalogers are headed (i.e. some are headed toward their exit strategy), power is getting ready to shift.

Those dependent upon your current strategy will resent the coming shift in power.

If you can imagine what your business looks like in 2030 and craft a plan to get from 2024 to 2030, you are well ahead of those who are going to fight over power instead of moving forward.




January 28, 2024

Analytics Failure

Last night in the NFC Championship Game the (checks notes) Detroit Lions led in the 3rd quarter by 14 points. They had a 4th down in field goal range. The didn't kick a field goal that could have put them up by 17 points. Instead, they went for it on fourth down (in the spirit of the fearlessness they exhibited all season) ... and they failed.

From there, the script writers put Detroit fans through a predictable blender of negative emotions culminating in a 34-31 loss to the 49ers.

A debate raged thereafter ... "analytics" suggested Detroit made the right decision. If one goes back an analyzes a wide range of games, the odds of winning increase more by going for it than by kicking a field goal.

Of course, analytics people fail the general public all the time. In this case, "analytics" should be reserved for young teams playing on the road in a Championship Game. It doesn't matter what Carolina did up 14 against the Cardinals in a game five years ago in a comparable situation in early October. It matters what a young team playing on the road in a Championship Game does in that situation.

One of my favorite analytics failures happened more than twenty years ago when the entire catalog industry was being forced into a digital world. When you acquired an online buyer, the online buyer had lower "future value" and therefore "analytics" told leadership to instead focus on a shrinking base of traditional catalog buyers. There were two problems with this thesis. First, digital customers had lower future value (profit) because they were being mailed wasteful catalogs they had no interest in whatsoever. Second, there was no data to determine the outcome of what would happen if a catalog brand continued to invest in a shrinking audience (which, by the way, was a terrible idea ... leading to a 65+ year old customer base in 2024 that will never migrate to digital tactics while only preferring merchandise that caters to 65+ year old customers).

In other words, "analytics" were wrong because the conditions being measured by analytics did not replicate the specific situation being analyzed.

Same thing with the misguided "omnichannel" approach to business that harmed retail brands. The analytics showed that buying from multiple channels was good. The analytics were wrong, of course, because the analytics were not built off of a specific scenario where existing channels were dying in favor of emerging channels ... analytics assumed a constant scenario. This mistake led to a "retail humbling" that we're still dealing with today.

Just because somebody is good with "analytics" doesn't mean that somebody understands how to apply "analytics" to a situation.

January 25, 2024

It's Time - Again!

It's time to declare your intent to participate in the February run of the MineThatData Elite Program!

Participation is always voluntary. Always.

  1. Cost for New Clients, First Run = $1,800 Pre-Paid.
  2. Cost for Existing Clients = $1,000 Pre-Paid.
Participants receive analysis in February, June, and October (Rocktober for those of you who listened to Classic Rock radio stations in the 80s).

Email me or call me (kevinh@minethatdata.com / 206-853-8278) if you wish to participate.

Data Requirements:  5 Years of Purchase History, 1 Row per Item Purchased, Data Through January 31, 2024.

January 24, 2024

Winning Ugly

It's not like there are a bunch of high-quality pickleball books to choose from, so sometimes you have to go to the world of tennis for guidance (click here).



Allow me to share a quote from the book - it'll relate to your world, ok?

  • "The way to make the biggest improvement in the shortest time is to better understand and use the opportunities for gaining an advantage that exist in every match you play. The big opportunities and the small opportunities. Especially the small opportunities, the ones players neglect because of ignorance or laziness. If you want to call that winning ugly, go ahead and get ugly. Develop your powers of observation and analysis and then use the information, and your chances of winning will go up by twenty percent or more."
I spoke with a CEO once. He told me what was wrong with his business. He clearly outlined how his customers were failing him.

One problem.

When I dug into the data, he was incorrect. Really incorrect. He completely missed the small opportunities, due to ignorance and laziness as mentioned in the quote above. He simply did not want to "do better" as folks say. By using his imagination (some would call this his 'gut feel'), he crafted a story and then had his marketing team execute against the story.

Is it any wonder that brand lost sales for a half-decade under his control?

There are so many little things that you can do, and if you do them better, you will perform better than your competition.

For some reason in the past year, those "little things" spill into email marketing. Folks have a template, they have a calendar, they have garbage they want to liquidate, and they're optimizing open rates. A recipe for disaster. When I point out that most of my e-commerce clients generate 20% to 45% of annual net sales from email marketing and they're generating 9%, they get frustrated. "That's a lot of work, and we just don't have the resources to do that" is the refrain used when I tell them what they need to do.

They don't like Winning Ugly, do they?







January 23, 2024

Setting the Stage

A winning item is not necessarily an item that sells the most units.

Pretend you are on Reddit reading about closed ear headphones. After reading all sorts of in-fighting about quality and sound signature, you decide to purchase these headphones at the non-trivial price of $299.



Some Google searching takes you to Crutchfield, where you buy the item.

This is where Crutchfield has a job to do ... if you are in Analytics at Crutchfield, your job is to measure the subsequent value of customers who purchase this item via Google (divided by search type and/or PLA etc) vs. all other items via Google ... and how those customers generate subsequent value via Google vs. via other channels.

If an item delivers customers with high future value ... again, not the channel, but the ITEM within a channel delivers new customers with high future value, then the ITEM is a winning item.

We just define the term "winner" differently.

Make sure your Analytics Professional is performing this analysis for you ... often. The item driving a first order is setting the stage for the remainder of the customer experience.




January 22, 2024

Defining a Winning Item

I talked about this previously, but my views on top selling items have changed in the decade since I released my Merchandise Forensics booklet.

Best selling items are more important today than they were ten years ago.

Best selling items used to be "best". What is "best" is now channel-dependent and seasonally-dependent. What works on Facebook is different than what works on Google, and what works on Google is different than what works via Email.

Best selling items historically were either margin generators (a $100 item with an $80 gross margin) or unit hounds (a $10 item with an $8 gross margin selling 10 units). Now that marketing channels are playing a much bigger role among winning items, the $40 item with a $32 gross margin selling a handful of items is important ... to Google or Facebook.

We're going to change our definition of winning items going forward. The high margin item that brings in new customers but doesn't appeal to loyal customers is still a winner ... we'll just define "winning" differently.

January 21, 2024

Let's Go Old-School For A Moment

In the 1990s, there were a pair of consultants I absolutely adored. They were a husband/wife team, and they had a methodology for determining how many catalogs a customer should receive, on an annual basis. I adored these two individuals. They fundamentally flipped old-school catalog marketing on it's end. Did anybody listen to them? Virtually nobody listened to them. But these two individuals are as important to an industry as Don Libey was.

Their methodology was in stark contrast to industry "best practices", which called for brands to select the best "n" names from their customer file for each mailing, on an independent basis.

If brands mailed customers on an independent basis, based on each individual mailing, the result looked like this - and then the optimal strategy via a "horizontal" approach ... deciding annually how often to mail somebody ... that is the bottom portion of the table.



Do you observe a difference?

The table at the top of the image is the "vendor centric" view of catalog mailing strategy - it's what our partners encourage ... it causes a catalog brand to mail more often, helping pay all paper/printing folks the most money in the process. It was that way in 1994. It is that way in 2024. Your vendor likely asks you to mail the "best" names in each mailing ... and if ad costs and response are constant, the outcome will be exactly as illustrated in the table above.

The table at the bottom of the image is how my models work - they're different from the methodology used by the husband/wife team in the 90s, but the outcome is essentially similar to what they authored.

The bottom table is a far more profitable outcome than the top of the table.


If you believe me and want me to implement the bottom of the table, contact me (kevinh@minethatdata.com) and we'll get started on a catalog marketing contact strategy project.


P.S.: In case you are wondering, the pioneers of a horizontal based mailing strategy were Robert and Kate Kestnbaum. They were light years ahead of their time.

January 17, 2024

What Are We Doing?

Here's the way the information looked:

  • Call Center Purchases:  Average Discount Percentage = 14%.
  • Online Purchases:  Average Discount Percentage = 17%.
  • Search Purchases:  Average Discount Percentage = 18%.
  • Social Purchases:  Average Discount Percentage = 18%,
  • Email Marketing Purchases:  Average Discount Percentage = 33%.

What are we even doing?

If you want your email marketing metrics to look good, yeah, give everything away, have at it.

If you want an email marketing program that your customer respects and generates profit, please, do something creative.

January 16, 2024

All Sorts of Fun Findings

There are an infinite number of ways to categorize the items you sell based on how well they sell. In the past year, I've generally settled on something like this.
  • Winners = Top 15% In Sales.
  • Contenders = Top 16% - 50% In Sales.
  • Others = 51% - 100% (bottom half) In Sales.

I evaluate each day - ranking items every single day. In other words, an item could be a winner on January 9 but on January 14 it is a contender. If you read my Merchandise Forensics booklet from a decade ago, yes, this is different than the way I looked at the world back in the day.

However, the analyses you can conduct with this style of measurement are a lot more fun and are also more insightful!

Example:  I reviewed an item that used to be a best seller. The item had fallen on hard times. Upon looking at winner/contender/other status, two things stood out.
  1. When the item was a winner, it sold well via the call center.
  2. When the item was a winner, it sold well via email marketing.

In other words, the brand stopped "advertising" this item like they previously advertised it. The item wasn't necessarily a "winner" as much as it performed well if the item was advertised.

It's important to find actionable tidbits in your work.

It's also important to do work that is fun, creative, and different than what Google / Facebook / Shopify / Your Marketing Agency want you to do.

January 15, 2024

Chili Bowl

This will come back to e-commerce, I promise.

You already know I enjoy playing pickleball. One of my other hobbies is sprint car / midget racing on dirt tracks. This past week was the Super Bowl of midget racing, called the Chili Bowl, in Tulsa.



About 370 cars start the week - at the end of the week 24 get to race for a national championship.

Interestingly, this event has no competition. It is held indoors in Tulsa in January. It doesn't pay well ($20,000 to win on Saturday night, $2,000 to start the 24 car finale). But it draws NASCAR drivers and drivers from many other racing disciplines - to see who is best.

I always giggle a bit when I hear pundits talk about how somebody like Target is "competing against Prime Day" with their own event. What a waste. Or when pundits demand that you give customers 50% off on Cyber Monday to remain competitive. Yuk.

Is there a reason why you don't have a compelling event on May 7?  Or September 27?

Building a compelling event is hard work, and there is no guarantee it will be compelling to the customer.

But it is important work. Be known for something.

January 14, 2024

Amazing

The links in Friday's article were among the most popular links in the past five years (click here). 

Clicks were 95% from catalog clients and potential catalog clients ... 5% were from vendors.

Tell me why so many of you clicked on those links? I have my hypotheses, of course.

January 11, 2024

"Power"

When vendors use words like "POWER", they are using code words to tell you that "ROI is in decline" (click here).

It wasn't long after the print industry emailed me the above article that others in the print industry started emailing me the article.

I've written a half-dozen versions of this post ... and it just isn't worth saying any more than the following:
  • If the ROI of print is so powerful, why didn't you send your announcements (and the article for that matter) via print instead of email and LinkedIn?

The print industry doesn't use the medium they tell you is full of "power". In fact, if you visit the Printing Impressions website, you'll find podcasts and newsletters you can subscribe to via e-mail ... you won't find a lot of ... print.

January 10, 2024

We Use Email To Push Garbage Items On Customers

Here was a fun outcome in a recent Merchandise Forensics project.

  • Twelve Month Buyers Would Spend About $100 In The Next Year.
  • If The Customer Bought Via Email Marketing, The Customer Added $20 Next Year.
  • If The Customer Bought The Most Popular Items That Sell Via Email Marketing, The Customer Subtracts $15 Next Year.
Do you see what is happening there?

Say a customer buys items that sell well in email marketing ... via another channel ... that customer spends $15 less next year.

Say the customer buys items that sell well in email marketing via email marketing ... that customer spends $20 - $15 = $5 more next year.

Ask the Professional responsible for the project "why" this happens, and you'll get the following answer:
  • We put the garbage nobody wants in email marketing programs to clear it out.

The analysis suggests that email marketing is important, and what the brand puts in those campaigns counteracts the importance of the channel.


Do you have a marketing channel that you purposely torpedo? And if the answer is yes, why do you do that? There may be a good reason - I mean, you have to get rid of the junk somehow.


P.S.:  Hint ... the channel you treat poorly should not, repeat, should not, be email marketing.

January 09, 2024

Amazing Subtleties

Here's what the analysis looked like for an e-commerce brand. This brand claimed that customers acquired via Paid Social were "lousy". Any analysis, even after controlling for customer quality, seemed to show that Paid Social customers were "lousy".

Dig into the data a bit deeper, and the suggestion that Paid Social buyers were "lousy" was "inaccurate".

I categorized each item the brand sold based on the channel that the item sold best in. If the item sold best in email marketing, it was given a "PREFERENCE = EMAIL" indicator. If the item sold best in paid social, it was given a "PREFERENCE = PAID SOCIAL" indicator.

Again ... every item is given a PREFERENCE based on actual sales performance across channels.

From there, I could analyze customer behavior controlling for customer quality, the channel PREFERENCE of each item sold, and the channel the customer purchased from. For instance, this e-commerce brand saw the following.

  • Customer buys PAID SOCIAL PREFERENCE ITEMS via EMAIL = $100.00 Future Sales.
  • Customer buys PAID SOCIAL PREFERENCE ITEMS via PAID SOCIAL = $80.00 Future Sales.
  • Customer buys EMAIL PREFEFENCE ITEMS via EMAIL = $120.00 Future Sales.
  • Customer buys EMAIL PREFERENCE ITEMS via PAID SOCIAL = $100.00 Future Sales.

In this example, marketing channels are only half the story.
  • The paid social channel delivers customers worth $20.00 less in the future (sales).
  • PAID SOCIAL PREFERENCE items deliver customers worth $20.00 less in the future (sales) regardless whether purchased via paid social or email.

In other words, in this example, the merchandise is HALF the problem. It is what sells via Paid Social that is half the problem, with Paid Social as a channel being HALF the problem.

Extend this analysis to all of your marketing channels, and get ready to be surprised. Yeah, what you sell matters a lot more than you think - and if you purposely push certain items within certain channels, you are creating interesting customer feedback loops.

There are amazing subtleties in your data, if you choose to look at your customer data in ways that Shopify or Google haven't pre-designed for you.

January 08, 2024

Oh ...

This happens (and it happens everywhere).



One of the hardest things in business is creating a value proposition that causes a customer to purchase something and pay as much as a brand wants the customer to pay.

Once the brand breaks that promise ... allowing the customer to pay what the customer wants to pay, well, it's an uphill battle.

And every November, December, and January ... we make that hill just a bit taller.


January 07, 2024

Great Moments in Analytics History

Sometimes you solve a really unique problem, one that shows information contrary to the common belief structure of an industry. That happened here in the past month.

Make sure you analyze the items you sell via various channels. Sometimes it's the items that cause odd interactions with your customers, not the marketing channels that cause odd interactions.

Yes, I'll share more over the next few weeks. Those of you paying for a Merchandise Forensics project will get the benefit of what has been learned.

January 04, 2024

The Perfect Omnichannel Experience

Based on the subject line above and prior use of the word "Omnichannel" in the titles of my posts, this is going to be the most popular article of 2024. At least so far.

I needed to return an item to Amazon. Amazon recommended driving to my nearest Kohl's store. Ok.

When you walk in, you are greeted by a busy Sephora store within Kohl's.



That's the last time I saw any appreciable traffic in the store. The rest of the store was neat, tidy, clean, and well-lit; a testament to 1980s style shopping.






Kinda like walking into a Younkers store in West Des Moines in 1989.

I made the mistake of getting in the returns line to return my Amazon item. The kind young woman gently pushed me toward the back corner of the store, where Amazon returns were processed. Good, kind, helpful employees.

Another kind young woman met me at the Amazon desk, and in a seamless, frictionless omnichannel process she managed the return in all of ten seconds, handing me a Sephora coupon in the process.



Intrepid Twitter/X user (https://twitter.com/kennakong) reminded me that there was also a Kohl's coupon on the receipt of the Amazon return.

A perfectly seamless, frictionless omnichannel experience resulted in me being a happy Amazon customer who spent $0 at Kohl's.

At some point, we have to make a choice.

  1. Do we funnel money to Amazon?
  2. Do we find a way to sell stuff that Amazon does not sell in a way that customers actually want to participate in/with?

Until that day happens ... until our brightest minds figure out this puzzle, we continue to be happy with Amazon customers funneling money and transactions through Amazon via third parties like (checks notes) Kohl's.


P.S.: One Twitter user grumbled that I didn't account for the money Amazon pays Kohl's to process returns. Yes, he is right, Amazon is paying Kohl's to perform menial tasks for Amazon. Is that the business Kohl's should be in? If the answer to that question is "yes", well, that speaks poorly of the art of retail shopping.

P.P.S.:  Having ordered a to-go order from Olive Garden tonight, I will argue that the very omnichannel tactics that are dooming retail shopping are actually beneficial to the to-go restaurant industry. Seamless/Frictionless? Absolutely! $6 upsells on small portions that you can heat up the next day? Well done! Why would this work so well in restaurants but not increase sales in retail? One word ... Amazon ... there is no Amazon to compete against in the restaurant world. Without the big monster lurking in the background, omnichannel strategies in the restaurant world do offer seamless/frictionless experiences .There, I said it.







How Can A Product Or Category "Cause" A Customer To Become More Valuable?

I'll go back to my time at Nordstrom ... two decades in the rear view mirror these days. Our Accessories merchant was a force of nature....