You're Not Doing It Right

Back in the 2001-2002 timeframe, I'd invite our list partners to a once-a-year summit. I'd line up some Executives to communicate the direction we were headed in as a brand, I'd share out department-level plans, and I'd ask each list partner to present how they thought our brand should evolve and how their brand could help us with that.

I recall in 2002 that the Executive from a co-op shared during her presentation that we needed, and I quote, to be "more Omnichannel". She wanted the same merchandise in all printed materials, and she wanted all customers to see the same merchandise. Same price, same merchandise, same customers. One brand. She wanted us to mail oodles of catalogs to retail customers (meaning she'd make more money for her brand).

There was one little problem with her thesis.

We measured her idea ... we had pieces where we tested same merchandise to same customers regardless of channel. Guess what? THE TACTIC WAS LESS PROFITABLE ... in fact, it was much less profitable. The best thing for the p&l was to tailor the merchandise in various pieces to the customers who liked the merchandise ... and at that time, retail customers liked different merchandise than the rural customer who liked shopping via catalogs. In fact, one of our biggest learnings happened during the 2002 Anniversary Sale, when my team mistakenly mailed our prospect catalog to our best customers and our large catalog to our prospects/lapsed buyers. Sales were virtually unchanged (about a million dollars less on a plan of $16,000,000 if I remember correctly). The fact that about half of our catalog pages generated essentially $0 changed how I viewed the effectiveness of catalog marketing. To this day, I use that knowledge to determine how many pages to mail a customer on an annual basis (click here for pricing).

I shared our data. The vendor Executive looked me in the eyes and said "well, then you're not doing it right".

I was always amazed when vendors would criticize what we were doing, and we'd have data to demonstrate that what we were doing was the most profitable answer. I don't care that you worked with Norm Thompson or Lillian Vernon and they did something unique in 1993, we're doing "x" and we've tested "y" and "x works better than y".

I have a lot of clients who want to know the specific tactics ... A then B then C then D ... that will allow them to be successful. I don't tell them the tactics. It's fool's gold. I don't work for your company and I don't know your customers. 

Only you know the answers.

I relished telling this Executive that we were discontinuing our catalog (back in 2005) because Management wanted to implement an Omnichannel approach, and Management decided that the catalog was not a profitable strategy within an Omnichannel approach. Even though I was largely losing my job and more than half of my team was being let go or being reassigned (i.e. my days at Nordstrom were nearly over), I had run the numbers and knew that the catalog had no place in an omnichannel approach.

We were much more profitable the year after we discontinued the catalog ... and a catalog that we thought generated 40%ish of direct channel sales, it turned out, generated about 3% of direct channel sales. Which meant, of course, that all of our testing was right and all of the attribution logic shoved down our throats by vendors was ... wrong. Now, did we get things wrong? Absolutely! We knew the customers who would stop receiving catalogs would spend less ... a lot less. We didn't know that reallocating that money to paid search would bring in so many new customers who liked our new merchandising direction, causing the direct channel to thrive. Life is a highway.

Don't let outsiders tell you that "you're not doing it right". You know more about your customers and your brand than they do. You are the expert.

Who Is In Control?

At every company, there are the people who appear to be in control (Owner, Board of Directors, CEO, Executive Team). Then there are the people who are actually in control. The old-timer who "knows where the bodies are buried" and says "no" to things and nobody understands how she's able to get away with saying "no", for instance. Every company has one of those.

Merchants have disproportionate control, and rightly so.

Creative folks have minimal control within a company but are the face of the brand to the customer. As such, they control far more than they realize.

It's always dangerous to outsource control. I'll give you an example. When we shut down the catalog division at Nordstrom in 2005, we replaced it with a brand-centric monthly mailer where third parties (i.e. Coach) could pay us $29,000 a page to advertise their products. They lined up to do so. We'd have no problem stitching together 160 pages of products from all sorts of third parties. Of course, when you are paying $29,000 a page, you demand control over what that page looks like. You pay $116,000 for two spreads (four pages), and you demand who comes before/after your pages too. The resulting hodge-podge was an abomination, and it performed abysmally from a sales standpoint. Of course, with no ad cost, every one of those abominations was profitable. We didn't have control, but we had money.

It's one thing to have the old-timer who knows where the bodies are buried ... that person has control, but that person operates in the best interest of the brand in the vast majority of cases. Your merchants care deeply about your company. So does the IT Director. It's quite another thing to trade control for money. Maybe you are a sports team who takes gambling money ... you give up control of a whole bunch of issues in exchange for cash. Maybe you are a cataloger who lets somebody from your printing vendor be "in residence" at your brand ... why does that person get to sit in on strategy meetings?

I remember a haunting meeting I had in 2001 with a Circulation Director at a competing brand. My predecessor apparently didn't understand how business worked ... he exchanged control of our own customers for cash. He rented the Nordstrom customer list to anybody who bothered to ask (yes, I'm exaggerating for effect). In the case of the Circulation Director, my predecessor leveraged what was called an "exchange" ... instead of each party sending each other $0.13 for every name, each party exchanged names, paying a tiny fee to our third party list partners to facilitate the transaction. Well, the Circulation Director at the other company took about 3,000,000 Nordstrom customers. My predecessor took maybe 300,000 names in exchange. He literally ceded control of Nordstrom customers to a competing brand, with nothing gained whatsoever (because we were exchanging names). When I put a stop to this practice, the Circulation Director for the competing brand pleaded with me to rethink my logic. She argued that I would put her inventory team in a difficult situation (as she'd planned to take another 3,000,000 names from us the next year and the inventory team bought product assuming they were mailing 3,000,000 Nordstrom customers ... fun business if you can get it) and they'd have to liquidate product and have a much less profitable year. Unfortunately, that wasn't my problem. I had to take control back from a competitor. I recall our list vendors saying I was behaving in an unfair manner, pleading with me to ease the relationship back slowly and gracefully. That would have taken five years. Come on! The list vendor allowed the relationship to get out of line, the competitor took complete advantage of us ... it was time for me to take control for the best interests of Nordstrom.

Who is in control where you work?

One of the lower moments in my career came at Nordstrom when my database marketing team needed to execute a strategy and needed a table built in a database. I worked with an IT Director to get these things done. He ticked me off. When I asked him to perform this task for my team he said, and I quote, "We need to pass your idea past our stakeholders and if they approve we'll consider it."

NO!

Stakeholders?

The mistake I made was telling the IT Director that real humans don't say words like "stakeholders". I demeaned the person, and I still feel bad about it 20 years later.

However ...

... I needed to take back control. I didn't need somebody in Finance or the Credit Division or Corporate IT to approve or disapprove of something that I could pay for out of my budget.

We got the table we needed.

Who is in control where you work?

Are the right people in control?

If the wrong people are in control, how do you work around these individuals to get things done?

Sameness: Tell Me Which Companies Are Selling The Products Here

You want to see a completely tepid, bland, homogenized shopping experience? Yes! Ok! Tell me the brands that are represented here. Good luck!

I'm not going to tell you the answer. It's the same darn presentation. This is awful. Same web development tools, same analytics packages yielding the same conversion rates, all praised by digital gurus who love it when brands adhere to "best practices".

It's not a best practice if everything looks this ... the same. 

It's tepid.

It's horribly boring.

It's time for a change.

Yes, I'm ready for your complaints.

Equal Does Not Result In Better

I'll show how this relates to commerce in a moment.

Ok - NASCAR - last Sunday, they raced at Martinsville. A fun track. A half mile. Too many cars for the track. Normally cars are passing, and more importantly, cars are being lapped all over the place. Action. But on Sunday, nobody wrecked, nobody passed, and consequently nothing happened. Fans are fed up. NASCAR created a new car a few years ago where most of the car cannot be adjusted and the parts are the same for every car. In other words, the cars are the same. And if the cars are the same, they go the same speed, which means nobody can pass. Boring.

An analytics person simulated where the 15 fastest cars would have finished if they all ran their median lap time over the final 50 laps.

Yeah, they're all running the same speed.

Three years ago the spring race was loved by the fans. Here's where the fastest 15 cars would have finished if they all ran their median lap over the final 50 laps.

See what you can do when you simulate results? It's a shame that the e-commerce world chooses to not embrace simulation environments.

Anyway, if everything is the same, then everything is boring. Nothing happens.

Which brings us to e-commerce.

Is there anything more boring than the mis-guided vendor-fueled thought-leader-promoted consultant-driven research-endorsed omnichannel thesis? Same price / same experience / same promos / same merchandise / same presentation / same everything in all channels.

BORING!

When things got really boring (mid-2010s), customers revolted ... they walked away from retail, killing malls ... they migrated from e-commerce to Amazon and have not looked back.

Omnichannel!

Sameness plagues my industry. You use PLAs and Paid Social to find new customers, paying third parties for the same handful of customers who are gullible when reached by those platforms. When I ask you to think outside of PLAs / Search / Paid Social, you look at me like I am an alien. Then you go back to the same analytics tools and look at the data the same way and wonder why you can't break out of the muck?

You're all the same. It's an industry-wide plague.

Results are tepid.

Customers are bored.

Amazon / Target / Walmart / Apple benefit as a consequence.

There's a reason Kaitlyn Clark was so compelling in Women's College Basketball this season. She was different. She played the game like an NBA point guard, she shot like Steph Curry.

Different.

Different is good!

Merchandise Dynamics Video 002: The "Class Of" Table

It will only take ten minutes out of your day - enjoy this video about Merchandise Dynamics and the "Class Of" Table that you've seen me discuss often over the past eleven years (click here).

For those of you who want a larger image of the table in the video, here you go (click on the image).

Drilling Down A Bit On The Problem

Yesterday we talked about a brand that had stalled ... from about $57 million four years ago to $53 million today.

And yet, our 30,000 foot view of the Class Of Report didn't really illustrate a glaring problem. Sure, prices had increased, but there wasn't a merchandise class where new items appeared to be failing and there didn't seem to be a huge issue with existing items being discontinued.

Let's drill down a bit. Now we're at around 18,000 feet ... that's where the jet stream does a lot of work. Can we see anything by looking at new/existing items and items selling at/above vs. below their historical average price point? Click on the image to enlarge it.

Ok, we're starting to get somewhere. Remember, this is still at a total-brand level. Individual categories will reveal more mysteries.

Let's go to the bottom of the table, to the section titled "New vs. Existing". Here we compare new/existing items selling at/above their historical average, or below their historical average price point. When items are selling below their historical average price point, items are being discounted ... either via lower prices, or via marketing promotions that destroy pricing integrity and margins in one fell swoop.

New Items Selling At/Above Their Historical Average Price Point:

• 37-48 Months Ago =   $9.1 million.
• 25-36 Months Ago = $10.4 million.
• 13-24 Months Ago =   $8.8 million.
• 00-12 Months Ago =   $7.9 million.

Well, that's no bueno. After peaking two years ago, demand is on a straight downward trajectory.

How about new items selling below their historical average price point? 

• 37-48 Months Ago =   $2.3 million.
• 25-36 Months Ago =   $2.1 million.
• 13-24 Months Ago =   $2.3 million.
• 00-12 Months Ago =   $3.1 million.

Ah ... HA!  We have a story.

New items are not meeting expectations, so the brand is discounting and/or liquidating to move stuff.

The problem is worse with new items ... but the problem happens with existing items as well, just at a slightly different cadence.

Existing Items Selling At/Above Their Average Historical Price Point:

• 37-48 Months Ago = $32.8 million.
• 25-36 Months Ago = $31.9 million.
• 13-24 Months Ago = $31.7 million.
• 00-12 Months Ago = $28.8 million.

The problem starts 25-36 months ago (when new items performed best), but was stable the year after ... only in the past year did the problem really manifest itself.

Existing Items Selling Below Their Average Historical Price Point:

• 37-48 Months Ago = $12.6 million.
• 25-36 Months Ago = $10.6 million.
• 13-24 Months Ago = $11.5 million.
• 00-12 Months Ago = $13.0 million.

25-36 months ago there was minimal discounting/promotions. 13-24 months ago there was a modest increase. In the past year, yup, here we go!

It's been my experience that these issues are typically merchandise-centric, but when I see both new/existing items being discounted I at least have to research new customer issues and measure comp segment performance.

It's also been my experience that the problems are not "global" ... several merchandise categories are causing a problem, and it is common for the marketer to slap on a 40% off promotion across-the-board as a global response to a local problem, further amplifying the problem.

The 30,000 Foot View

Here's a "Class Of" Report for a Brand I studied ... it's for the total brand, looking at a high level ... 30,000 feet high. And yet, the stories begin to speak to us. Click on the image to make it bigger.

The top portion of the table shows us what top-line demand looks like by annual merchandise class. This brand is contracting ... from $54.6 million to $56.8 million three years ago ... then problems begin, down to $55.0 million, then $54.2 million, then $52.8 million. This is the point where people usually decide to hire me (you might be in that boat ... here's project pricing as an FYI ... so you know, your problems are usually merchandise-related, not marketing-related).

I include units sold, because it is common for the old adage "units = customers" to appear in these projects. Units sold are in decline as well, so let's page down to the bottom portion of the table, where I evaluate price per item sold by merchandise class. Here we go.

• 49 - 60 Months Ago = $46.15 per item.
• 37 - 48 Months Ago = $46.57 per item.
• 25 - 36 Months Ago = $49.43 per item.
• 13 - 24 Months Ago = $50.66 per item.
• 00 - 12 Months Ago = $51.89 per item.

Yeah, the brand is walking prices up higher and higher. If demand is down and prices are higher, it means that units sold are down even more (which means customer counts are down even more - but that is a topic for another day).

Let's look at the average price of a new item by merchandise class.

• 37 - 48 Months Ago = $48.05 per item.
• 25 - 36 Months Ago = $47.60 per item.
• 13 - 24 Months Ago = $53.56 per item.
• 00 - 12 Months Ago = $50.50 per item.

Ew. Results are all over the board, aren't they? This tells me there are myriad stories to be told at a category level.

Here's the average price point of an existing item by year.

• 37 - 48 Months Ago = $46.57 per item.
• 25 - 36 Months Ago = $49.43 per item.
• 13 - 24 Months Ago = $50.66 per item.
• 00 - 12 Months Ago = $51.89 per item.

Existing products being sold are more expensive over time. It suggests that the brand is either raising prices or are discontinuing older items that are cheaper.

At 30,000 feet, there is a problem, but we're too far away from the problem. We need to drill down a bit. We'll do that tomorrow ... and Wednesday I'll publish another video for those of you who enjoyed that style of diversion from your daily routine.