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.

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.

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.

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.

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.

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?

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.

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.

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.

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.

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.

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.

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.

"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.

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.

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.

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.

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.

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.

Speaking of "Best" Practices

This would be categorized as a "practice" I suppose.

The problem, of course, assuming anybody is truly interested in receiving this paper-based marketing piece in the mail, is that by sending an email campaign announcing it followed by "shop now", some customers will "shop now" (probably not a lot), and those orders are pulled out of next week's grand catalog debut and are instead attributed to email marketing - thereby decreasing the measured effectiveness of the catalog, causing it to perform slightly worse, causing a reduction in circulation next year which means next year's catalog is sub-optimized and your paper rep is one step further away from a $50,000 bonus.

Happens every day when marketers try to get clever, or the COO is tired of overseeing a robot-infused warehouse, or the paper rep gets in the building and conceives an "integration plan" to use digital to boost awareness of paper and the email marketing manager says "It's only one out of 400 campaigns this year, so what?"

Every compromise is like pulling one tile out of the Jenga tower.

Holiday Sales Update

According to this source (click here), retail sales were up 2.2%, online sales were up 6.3%, total sales were up 3.1%.

Always important, of course, is how you get somewhere. If the average price per item sold is up 7% and sales are up 3%, it means you have a unit deflation problem. Units = Customers in many cases.

We Made The Difficult Decision ...

The business leader felt that "market forces" were working against customer acquisition via paper. So she said ... "we made the difficult decision to stop acquiring customers via paper."

This business has 100,000 twelve-month buyers, and 30% of them are retained year-over-year, spending $200 each.

This business generates 75,000 new/reactivated buyers per year, spending $125 each.

Now that this business made the "difficult decision", let's see what happens.

Business As Usual:  100,000*0.30*$200 + 75,000*$125 = $15,375,000.

Difficult Decision:  100,000*0.30*$200 + 30,000*$125 = $9,750,000.

Ouch.

But it gets worse. Let's carry the forecast through to the following year.

• 60,000*0.30*$200 + 30,000*$125 = $7,350,000.

Difficult decisions often cascade into other difficult decisions ... like trying to explain to the Owner/Shareholders why you let a $15 million dollar brand become a $7 million dollar brand.

2024 is the Year of Having a Plan.