The Long and Winding Road

Your business performance is undoubtedly due to decisions you recently made.

It's also the outcome of decisions made 1-3 years ago.

I worked with a company that threw away winning merchandise ... they just killed a bunch of items, replacing them with stuff that didn't work. Customers acquired 3-5 years ago were loyal to a style of merchandise that they were acquired from. It took this company about thirty months to rebuild the merchandise assortment and ultimately identify new winning items that were aligned with the winning items from 3-5 years ago.

Do you want to know one of the huge benefits of having a 15% or 20% annual rebuy rate? Rebuilding your business is not a long and winding road! You can reinvent your customer base annually! The low-retention businesses I've been aligned with constantly reinvent themselves, they aren't beholden to the past. It's a feature of this business model.

If you are Macy's and you have a customer base with a 60% annual rebuy rate? You can't reinvent anything!! You are truly on a long and winding road, you're not driving the car and your customers own the keys to your car. Any change you make is met with criticism from your long-time loyal customer base. Pundits mock companies like Macy's for not being willing to change or evolve with the times. Pundits are wrong ... companies like Macy's cannot change or evolve with the times or their existing customer base will reject them. They're stuck. It's a huge disadvantage for having a loyal customer base. You're quite honestly better off creating new brands than trying to reinvent the existing brand, your loyal customers won't let you reinvent the existing brand.

Both the low-rebuy ecommerce brand and the loyalty-centric retail brand need to develop new items that become winning items. This part of business is universal, and it's a lot of fun for the marketer/analyst who decides to help grow the business via great items.

Newness

I watched some of the US-Spain Women's Soccer match Tuesday night.

So many players I didn't recognize. The ones I recognized largely won the Olympics a few years ago. The great class from 2015-2019, the players who struggled in the 2023 World Cup, they're gone. Times change, and if future players aren't identified and developed, future performance suffers.

Have you watched the Kansas City Chiefs play football this year? Patrick Mahomes is running the show, but look at his supporting cast ... it's a new generation of players, isn't it?

You know all about this dynamic, don't you?

If you don't find new customers, future performance suffers.

If you don't develop new items into winning items, future performance suffers.

In many ways, if you don't explore new marketing channels, future performance suffers. It's one of the blind spots of modern ecommerce professionals ... pursuit of marketplaces resulted in dead ends and missed opportunities elsewhere. Yes, some of you with commodity products are actually better-served selling on Amazon than on your own platform. Those of you who spent the past twenty years building viable "brands" have better opportunities to pursue.

Ecommerce is an endless exploration of "newness". If you are an analytically-focused professional, there's an entire career that can be built from the blueprint of newness + winners (winning items, winning customers).

A CEO Who's Customer Retention Heart Had Hardened

Back in the days when somebody paid to put you on an airplane (i.e. pre-video-conference days), I was asked by a CEO to visit his company to address a comment I made in a project writeup.

The comment?

"Until 'brand x' realizes they only retain 33% of last year's buyer file and invests significantly in customer acquisition efforts, 'brand x" will continue to contract."

At this time I had worked with the brand for more than seven years.

I was asked to present my findings to several operational teams within the company. At the end of the day, the Executive Team gathered with the CEO. It was my job to explain my findings to the CEO.

The CEO did not like my message. He took umbrage with my comment that his brand would contract. He began to yell. His face reddened. He eventually slammed his fist on the table hard enough to cause tendon damage, telling me that I didn't understand business, that his team would crack the code for customer loyalty.

At this time, his annual rebuy rates had already declined by about five percentage points (i.e. from 45% to 40%) over a seven-year period of time. I decided to chime in. My comment would end our business relationship. Here's what I said.

• "You've already had seven years as CEO to crack the loyalty code. Instead, your rebuy rates have contracted over your tenure. What makes you think you the next seven years will be different?"

With that, I lost a lot of $$$, because this client was very good to me.

Would you want an analytics consultant to tell you the truth?

Or do you want an analytics consultant to make you feel good?

This CEO wanted the latter.

The problem, by the way, was not fixed. Even after a new Management Team took over.

You do not solve customer retention problems. I have a client who does an amazing job of getting as close as you can to solving customer retention problems. They've figured out the fusion of merchandising strategy and marketing targeting solutions. You CAN make a difference. You CAN'T solve the problem.

Your ability to retain your customer base is largely constrained by the merchandise you sell. If you sell stuff that doesn't sell well in summer, why would you retain customers in summer? And if you cannot retain customers in summer, why would your retention rate be high?

The business I'm talking about here had a season when the majority of their sales happened ... the customer simply didn't need their products or services year-round. By default, their business was calibrated to NOT retain customers each year.

Most of your businesses are calibrated to NOT retain customers. That's business - you succeed for other reasons!!!  You know this to be true if your average number of annual purchases per twelve-month buyer is under 2.0. Somewhere between 2.5 and 3.0 purchases per year is the spot where retention sings and loyalty becomes apparent.

No amount of fist-slamming fixes a retention problem. Only year-round appealing merchandise does that.

Your November / December Forecast

Let's try something ... contact me (kevinh@minethatdata.com) and for a nominal fee I'll produce a forecast for three timeframes, based on how your customer file looks as of today. I mean, it is Forecast Season!

• Timeframe #1 = November before the day before Thanksgiving.
• Timeframe #2 = Cyber Window ... day before Thanksgiving to the Saturday after Cyber Monday.
• Timeframe #3 = Sunday after Cyber Monday - December 31.

If you have a customer file problem, I'll be able to expose it for you quickly (project turnaround would be in just a few days), allowing you to change your marketing investments to help meet your business goals during November / December.

Contact me now (kevinh@minethatdata.com) and I'll turn this one around for you quickly at a cost that you can literally Venmo me the funds.

The Hated Holiday

There's just nothing in ecommerce more rudimentary, nothing that shows your service provider doesn't truly understand business ... than the promotion of Cyber Monday.

Or worse, "BFCM" as the service provider industry calls it.

Yesterday I talked about "double dipping" ... the proven method of acquiring / converting customers in September / October so they are recent and active in November / December, thereby "double dipping" ... generating two orders in a short period of time.

What makes more sense to you?

• Acquire a customer or activate a customer in Sep/Oct and then get another quick purchase in Nov/Dec?
• Generate an order at 50% off and then the customer doesn't spend money on full priced merchandise the rest of the year while waiting for "BFCM" again? It's good business for service providers. It's not good business for you. Why give away all that gross margin to participate in a service provider holiday?

Have you ever asked yourself why Amazon might benefit from Prime Days in the first week of October? It's almost like they're trying to get customers to double-dip!

Double-Dip Season

As you likely know, in most cases you WANT to acquire a new customer in September or October.

Why?

You get to double-dip. 

When you acquire a customer on December 13, the customer is "done". The customer might purchase clearance products in January and might buy again in Spring (but probably won't buy again in Spring). From there, the customer largely goes dormant until the following November/December.

When you acquire a customer on October 13, the customer is "not done". When the customer is most likely to buy for a second time (the first ten weeks after a first purchase), you present the customer with November / December ... two months of amplified response. The customer quickly becomes a 2x buyer, and from there the customer is on the path to loyalty.

One of the easiest ways to build a loyal customer base is to acquire customers in Sep/Oct then send trigger-based email campaigns to customers through December to rapidly generate a second order. Many companies do this, it's highly effective, and it's highly profitable.

So go do it!!

Working With A Great Partner

When I worked at Eddie Bauer, I was part of what was called the "Catalog Business Team" ... CBT. It was our job to execute the catalog and ecommerce marketing, merchandising, inventory, creative, and operational team plans. Not being Lemonheads, we took our mandate further. We acted like we owned the catalog/ecommerce division, for good reason of course, because if we messed up, we were fired. Best to be fired setting the tone rather than following marching orders.

I was responsible for catalog marketing and analytics. My inventory partner was the best. We made the company a ton of money by working together, partnering on what our business / sales plan would be long before anybody else paid attention. By doing that, we had a solid plan when the Executives chose to pay attention. They nibbled around the edges of the plan, but the plan was truly our plan.

The most profit the catalog/ecommerce channel ever generated happened on our watch.

We partnered on dictating the merchandise assortment we'd feature in catalog and online. Back then the catalog drove everything, today it would be quite a different story. Let's pretend that last year's October catalog had the following composition.

• 24 pages of mens existing merch.
• 24 pages of mens new merch.
• 36 pages of womens existing merch.
• 36 pages of womens new merch.
• 8 pages of home.
• 8 pages of womens tailored merch.
• 136 pages total.

I would determine how many pages we could profitably mail next year, based on last year's productivity. Let's say I could only author 120 pages. My partner would go back and optimize performance of each category above based on last year's productivity, yielding a plan that might look like this.

• 16 pages of mens existing merch.
• 20 pages of mens new merch.
• 40 pages of womens existing merch.
• 36 pages of womens new merch.
• 4 pages of home.
• 4 pages of womens tailored merch.
• 120 pages total.

From here, I'd calculate the expected productivity of the pages. Fewer pages means less sales but better productivity. I'd calculate "merchandise productivity" ... showing that my partner's optimization resulted in each page being 10% more productive. Sales would decrease, but each page was more profitable. This allowed me to circulate deeper, converting more customers.

• Last Year:  3,000,000 catalogs at 136 pages, sales = $20,000,000. Demand per Thousand Pages Circulated = $49.02.
• Next Year:  3,500,000 catalogs at 120 pages, sales = $22,320,000. Demand per Thousand Pages Circulated = $53.14.
• Demand/Sales would be +12%, ad costs would be +3%, profit would increase by $700,000.

We replicated this for every catalog we'd mail, we'd adjust merchandise productivity and give direction to the nascent ecommerce team, our plan would fold into plans for the call center, the distribution center, for inventory buys, and it would give direction to our merchants and creative team.

There were two teams that generally argued with the plan.

1. The merchandising team.
2. The creative team.

The merchandising team did not like constraints ... constraints like "16 pages of mens existing merchandise". They wanted 32 pages. My partner and I would run the scenarios for everybody, showing how much sales/profit we'd give up adhering to their direction. To some extent this happens at every company, but disciplined companies push back when the merchants want "more".

The creative team did not like constraints. They wanted eight pages for "branding". No selling. We'd explain that was like flushing $80,000 of profit down the toilet. We'd ask the creative folks if they wanted to explain their ideas to the CEO. They didn't want to explain their ideas to the CEO.

There's nothing that destroys the profitability of an old-school catalog division like a creative director who wants to explore "branding".

But when you have a great business partner ... and the two of you work in lock-step ... you can achieve record profit.

Within a year I'd leave to work in the dot-com world (what ultimately became the 'retargeting' industry), watched my stock options go from 78 13/16 to 1, then accepted a job at Nordstrom, where I again had great partners (the merchant/creative person and the inventory person were both very good).

There are few things in business more enjoyable than working with great partners who have facts and work in lock-step with you to achieve great things ... and then great things happen.