Merchandise Residual Value and Winning Items

Let's say you want to go crappie fishing. You'd need your rod/reel. Maybe a squirming grub. And some crappie bites. You wouldn't impale a worm on a hook and hope for the best.

The same concept applies to fishing for new customers.

You don't say "60% OFF LIMITED TIME ONLY" which really means "IT'S LIMITED BECAUSE NEXT WEEK WE'RE 70% OFF!"

I mean, that's lazy and stupid. It's a marketing best practice, but it is lazy and stupid.

Because you are smart, you "curate" your assortment for prospects that could become new customers.

• Best Selling Items.
• Items That Attract Customers More Likely To Purchase In The Future.

Why best selling items? Because those items have higher conversion rates, better ROAS, and better profit per new customer. Why waste marketing dollars on stuff that doesn't sell? Are you are Lemonhead? No!

Why high MRV items? Because you want new customers who are more likely to repurchase in the future than new customers who are one-and-done. Why waste marketing dollars on new customers who don't buy again? Are you a Lemonhead? No!

Your "prospecting assortment" is different than your overall merchandising assortment.

1. Only offer winning or high-contending items, improving your cost per new customer.
2. Only offer items that increase the probability of a new customer buying again by 20% (high MRV items), improving your downstream rebuy rates.

It's so easy.

So why aren't you doing this?

Training / Academies

Here in Phoenix, the USL team (Phoenix Rising) has an Academy. This is common in soccer / football, of course. The next generation of players are developed, giving the parent team an opportunity to lock-in talent trained in the methodologies and strategies of the parent team.

The NBA has a G-League and College Basketball.

The NFL has College Football.

MLB has the Minor Leagues (Rookie, A, AA, AAA).

E-Commerce is already being filled with Academies ... they are otherwise called "AI". We're in the top-of-the-first-inning in AI. We are training AI to do things to make our lives both easier and more strategic in nature.

As you already know, AI needs to be "trained". It isn't magic. It requires human smarts.

Are you a good "trainer"? Do you know what information AI needs to be trained properly. Does the agency that uses AI know what information needs to be used to train AI properly?

The answer is invariably going to be "no". Dumb people, dumb agencies, and smart algorithms will produce dumb outcomes.

You can train AI to create the best-performing omnichannel campaigns on Facebook, and AI will do what you train it to do. But if you have no business sense whatsoever and want to push moronic ommnichannel slop at a customer who could care less, you will optimize a very low performing campaign into low-performing territory.

Somebody has to be the smart person in the room. Why can't that person be you?

Backgammon

This video of a Backgammon championship garnered more than 175,000 views to-date. It's on YouTube, there are analysts discussing the match, they have a computer that assesses who is "making errors" in real-time, the computer shares the probability of winning in real-time, and the analysts even play a game during a break with one of the individuals in live chat.

Also - Pickleball TV is now a channel on YouTube TV ... nearly ten million subscribers can watch professional pickleball matches 24/7/365. Was that ever a possibility a decade ago? As of tonight, you can't watch ESPN or ABC on YouTube TV but you can watch the World Championships of Pickleball live.

What does this have to do with e-commerce?

There is a lot of innovation these days. Here's an AI tool that promises to replace most of the functions of marketing for small businesses, allowing the marketer to be "strategic". Which is code, of course, for "we're going to take your job and you will be the one who will pay us to give up your job". A lot of innovation, no doubt ... similar to the Backgammon channel above, where the computer is doing a lot of work and yet the analysts still convert everything into plain language. The analysts also promote the book they wrote during the match ... monetizing the event in their favor. Heck, they promote their book being on Backgammon Galaxy (click here). Who knew there was a store called Backgammon Galaxy? More important - that store is on Shopify. While you were trying to adhere to a nonsense-based Omnichannel Thesis that your boutique agency demanded you adhere to (#printisback), Shopify took over the world. 

Imagine five years from now ... your store is on Shopify, Shopify AI is doing your marketing and is fully integrated with the Shopify Ecosystem so when your prospect purchases a t-shirt from Backgammon Galaxy Shopify AI sends the customer a text message encouraging the customer to buy from your store ... all automated, all out of your control. 

It's coming. You know it is coming. You and I are unprepared for this future. We will adapt.

P.S.:  One of the analysts on the Backgammon broadcast said "Learn the Rules, then Break the Rules". That's a smart line. How does that line apply to your business?

P.P.S.:  Backgammon Strategy meets AI Principles. A book on Backgammon Galaxy. Would you be able to write a book called "E-Commerce Strategy meets AI Principles"???

The "Cyber Window"

Since the pattern has repeated for more than twenty years, I thought I'd coin a term for you. Those who participated in the October run of the Elite Program already know the answer to what is coming.

The "Cyber Window":  The period between the day before Thanksgiving (November 26 this year) and the Saturday after Cyber Monday (December 6 this year). A timeframe featuring a veritable buffet of profitless discounts / promotions designed to please anybody that does not have p&l responsibility.

Identify the quality of new customers acquired during the "Cyber Window". It's a fun / revealing analysis.

You Always Want Ideas - Here's One

Chinese headphone companies offer lots of discounts / promotions on November 11.

One of the big umbrella brands, Linsoul, is offering three tiers of discounts that you pre-purchase. Here is one of the tiers.

By spending $1.11, you get $25 off $60 plus access to the event. That's the Bronze Pass. Here are the Silver and Gold level incentives.

Now, from a data collection standpoint, imagine what you could do with knowledge of the fact that some of your customers will "pre-pay" for access to discounts? How does this fact differ from the sloppy customer who simply gets 30% off from the even-sloppier marketer?

If you're about to criticize me for sharing a tactic with you (and yes, I get mail when I do this stuff), think about taking a look in the mirror and asking yourself why your 60% off plus free shipping is more useful than what is outlined above?

 

Pick Up A Broom

A little bit of a parable for you.

In my community (a retirement community though I'm not retired, which of course is a goal I will one day achieve), I am the Master of Ceremonies for a 200 person party. Catered meal, I facilitate the program. Every year there are maybe 25 people out of 200 who don't like the party. They have "ideas". 

• "Have you thought about serving pheasant, because people love easting pheasant."
• "Why don't you host the party outside? I mean, so what if it rains?"
• "The bar ran out of Pabst beer, and that's on you, that's your fault, you ruined the party."

I'm on a party planning committee. Each year maybe 3 of the 25 grumblers "wants to do something about it". They ask to join our committee, we say yes, we host a post-mortem of the party from the prior year, the three new individuals air their grievances, we listen, we tell the new people that maybe they could be the ones who fix the problem. If there isn't enough Pabst Beer, is the new person willing to work with catering to solve the problem?

What do you think happens when the person raising the issue is asked to solve the problem?

Yeah, the person quits the committee.

The post mortem on the United States will show that Fox News, CNN, and MSNBC destroyed the country from within ... creating a disincentive for those who "do" the work ... creating fabulous incentives for those who criticize those who "do" the work.

Are there any parallels in retail and/or e-commerce? Maybe you listen to a podcaster who has ideas about how to fix JCP. Why don't you (the podcaster) go fix JCP? Put your reputation on the line and see if you are an Actual Leader or just a Thought Leader.

My wife worked with an HR leader who used to say "Pick Up A Broom" when somebody would criticize. In other words, when somebody accidentally empties a box of Special K cereal on the floor you can point that fact out to somebody, or you can pick up a broom and clean up the mess yourself.

P.S.:  Ask me sometime what it was like to run pickleball ratings for a year at my pickleball club. There were plenty of incentives for those who criticized people who "did" the work.

Returns

As J. Peterman said on Seinfeld ... "well that looks like a lot of words"

The omnichannel thesis loves free returns. 

Have you ever actually analyzed how customers who return merchandise behave?

First, assume you have three customers.

• Customer #1 = Spends $100, Keeps $100.
• Customer #2 = Spends $150, Keeps $100.
• Customer #3 = Spends $150, Keeps $150.

Which customer is most valuable?

This one is a fun exercise. It generally requires a bit of regression nuance to parse out the value of the $50 that is returned. In most projects, Customer #2 is more likely to repurchase in the future than Customer #1 but less likely to repurchase in the future than Customer #3. In terms of value, Customer #2 is less valuable than Customer #1 because of the costs associated with the return.

Second, there is a limit where returns behavior becomes punitive. A whopping thirty-two years ago at Lands' End we used the Hyperbolic Tangent Function to model returns behavior (we used this function because we had customers who returned more merchandise than they purchased ... ponder that one). We learned something interesting (I shared this with you previously).

• Any customer purchasing at least three times and returning at least 70% of what they purchased was a customer we didn't want to market to anymore, because that customer would return 60% of future merchandise ... the relationship would not be profitable.

In 1993 that was a big deal ... it meant that the 13-50 catalogs this customer would normally receive were reduced to maybe four. And wowzer, did the customers who went from 13-50 catalogs per year to four HOWL. I caused our call center employees a bunch of grief.

In 2025, why does the high returns customer deserve ten (10) email campaigns per week? Why not cut that number down from ten to two? You are not stopping the customer from buying from you ... you are simply cutting back on marketing to the customer who wants to return stuff.

Perform the analysis, and do something!