Times Are Changing

This is a fun graph.

One of my favorite images of all time was this misguided one from McKinsey about twenty years ago. Long-time readers have heard my gripes ... many times ... silly Venn Diagram.

The image was a colossal analytical failure because there is a confounding variable ... as customers purchase more and more, they are more and more likely to purchase from multiple channels. The analysis error is identical to saying "Customers Who Purchase On Multiple Days Of The Week Are More Valuable Than Customers Buying From Just One Day Of The Week". You'll buy from multiple days of the week when you buy at least twice ... by definition, you'll buy from just one day of the week when you buy just one time. Purchase Frequency is the confounding variable here.

Reality:  Your customers only want to purchase from you "x" times per year. That's it. You have a small number of customers who will buy from you a lot. The vast majority of your customer base is locked into a small number of annual purchases.

Here's where the retail chart and the Venn Diagram come into play. If your customer is locked into a small number of purchases per year (as most are), and you keep offering the customer more ways to purchase, you will divide up a small number of orders across a large number of marketing/physical channels. This means weak channels will lose, by definition they have to lose ... they only way more marketing channels (and the investment involved with each of them) can win is if merchandise productivity increases.

Worse, if your merchandise productivity decreases ... weaker channels immediately become much, much weaker. Weak stores immediately become untenable. Weak marketing channels, like catalogs, become untenable.

This is what the Paper/Printing/USPS world did not understand. They constrained supply, they increased costs to you ... at the very same time that you had all of the digital marketing channels eating away at legacy print channels ... a double-whammy that accelerated the demise of the Paper/Printing/USPS folks. These folks executed the exact wrong strategy ... when marketing channels are weakening, the cost to execute within those channels must come down. Not up. Down.

What do you want Orvis to do, folks? Sell on Amazon, a strong marketing channel that promises consistent variable profit while giving up a corner of your soul ... or keep expensive stores open and expensive paper in the mail while orders flow out of those channels into more lucrative marketing channels? Orvis may not realize it, but Orvis might be (long-term) headed down a path not unlike Truthear is with iems selling on Headphones.com and Amazon. I work with enough clients, and get to see enough "alternate channel / marketplace" transactions to see a version of the future where traditional "brands" become "vendors".

Times are changing. Your marketing team often feels overwhelmed with too many marketing channels to manage and not enough profit. Marketing channel contraction is coming for brands with weak or average merchandise productivity.