The Third Biggest File Power Story of 2020

Have you ever executed a strategy like this? Business isn't great, and you need new customers and Management demands that you sell something RIGHT NOW or you will be fired. So you do the only thing you can do RIGHT NOW to keep your job.

• 40% Off.
• Free Shipping.

And guess what? Customers purchase something!! Who cares about the p&l implications of what you just caused, you needed to sell something RIGHT NOW or you'd lose your job and there was no way you were going to lose your job, was there?

You could have acquired 100 customers at full price.

You chose to acquire 140 customers at 40% off plus free shipping.

And then something awful happens.

The 140 customers you just acquired won't buy again unless you give them 40% off plus free shipping. Congratulations!!

This is a classic case of File Power Abuse.

You could have expected the following from 100 full-price customers.

• 30% chance of buying next year.
• $100 average spend in the next year.
• 55% gross margin (after subtracting future discounts and shipping +/-).
• File Power = 0.30*$100 = $30 ... Margin = $30*0.55 = $16.50.
• Total File Power Margin = 100 * $16.50 = $1,650.

Instead, you signed up for the following future from 140 discount/promo buyers.

• 33% chance of buying next year.
• $95 average spend in the next year.
• 30% gross margin (after subtracting future discounts and shipping +/-).
• File Power = 0.33*$95 = $31.35 ... Margin = $31.35*0.30 = $9.41.
• Total File Power Margin = 140 * $9.41 = $1,317.

See what you did there?

This is the third biggest File Power story of 2020. We traded our souls. By getting to keep our job RIGHT NOW we made it nearly impossible to have a quality job at the brand we love working for, long-term.

You measure File Power, right?

Right?

The Second Biggest File Power Story of 2020

The second biggest File Power story of 2020 has to do with marketing channels.

Here's what I commonly observe (again, how I calculate "File Power" will be explained later ... focus on the concepts today).

1. Traditional Call-Center Customers have 100% "File Power".
2. Traditional In-Store Shoppers have 100% File Power.
3. Desktop/Laptop E-Commerce Customers have 85% File Power.
4. Mobile fused with Social Customers have 70% File Power.

The ramifications of this finding (your mileage will vary) are driving modern commerce challenges.

You read about mobile having low conversion rates. That's a surface issue ... what I'm talking about is deeper than that. When you convert a customer from e-commerce to mobile, you increase the File Power of the customer with the purchase but you decrease the File Power by causing the customer to switch channels. In the short-term, you get a purchase. In the long-term, you weaken your business.

This is particularly harmful in retail, where you convert the in-store customer to e-commerce, you split future purchases across both channels, and you reduce File Power going forward. This is a huge reason why thousands of stores are closing and brands are going bankrupt. We (Marketers / Management) caused this to happen. We did it to ourselves. We didn't measure File Power, we didn't synthesize what it truly meant, and now we're paying the price for decisions we made years ago.

The themes above come up over and over and over again ... the second biggest File Power story of 2020.

You're measuring File Power, right?

Right?

The Biggest File Power Story of 2020

One of the most popular questions I'm getting is this one ... "What Is Happening To File Power Across Your Client Base?"

This graph represents one of the three biggest File Power stories I'm seeing. For now, don't worry about the numbers on the x-axis, they will be explained in due time. Instead, think about the concept illustrated in the graph.

For this brand, the twelve-month customer file is contracting ... contracting at an alarming rate. This is a common trend these days.

Also common is the "File Power" of those who are buying ... File Power is increasing. Think of File Power as a parallel to "Lifetime Value" ... it is a metric that tells us how strong a customer is likely to be, moving forward.

In the example above, the file gets smaller every single day ... but as it gets smaller, the customers who are still buying have increased File Power. In other words, the infrequent and low-quality customers are disappearing.

This is soooooooooooo common in my project work in the past year. One might theorize that Amazon is scooping up the infrequent buyers. One might theorize that increased prices result in fewer customers. In retail, one might theorize that reduced mall traffic among infrequent buyers yields this outcome. Others might guess that Google/Facebook are redirecting traffic to the parties they prefer.

The reason doesn't matter.

This relationship is frequently a "late stage indicator" of an unhealthy brand.

And if you don't measure File Power, you don't know if this is happening or not.

What's Coming Over The Next Few Weeks?

You might remember the ad cost simulation I discussed in December.

And you likely remember the past 1-2 weeks, where I've initiated a discussion about what I call File Power.

Both are interrelated.

When you craft a loyalty program, you are trying to increase File Power. You are trading margin dollars for customers.

When you send an email message ... five a week at times ... you are trying to increase File Power. You are trading content for customers.

When you cultivate an Instagram presence, you are trying to increase File Power. You are trading content for prospects, prospects that become customers.

All of this information can be translated into File Power. We can fully measure File Power, we can act upon File Power in a targeted manner, and we can simulate long-term profit/loss based on short-term marketing decisions.

What comes over the next few weeks is an exploration of what goes into File Power. I'll take it slow, I'll keep the geeky math contained to one long post that you can make a TL:DR (too long - don't read) reference to, and then I'll head more into actionable outcomes.

After exploring the concepts, I'll boil this down to a product that is likely to cost in the $24,000 - $25,000 range. And that will be a bargain.

What's in it for you? Well, if you want a significant cost reduction and you want to be part of the prototyping process, send me an email (kevinh@minethatdata.com) and for $9,000 I'll use the code I've prototyped on your data. You save a ton of money. What's not to like about that?

Tomorrow I begin the process of explaining the requests I've been getting in the past six months, explaining how those requests all translate to the concept of File Power.

Conference Evolution

The 40% of you who read this blog and are die-hard catalogers probably learned about the news yesterday (click here).

I've run my own consulting business for nearly thirteen years. In case you haven't noticed, the world was very different in 2007 than it is in 2020.

When I began my consulting work, conferences were critical to success. If you were invited to speak at NEMOA, you earned $20,000 to $40,000 in follow-up consulting work. And in 2007, there were very few voices with a public audience. My blog was a year old, and I quickly earned 2,500 followers. In no time at all. It pays to be out in front of a trend. Some of your 2,500 followers would attend the conference just to hear you speak in a live setting. The conference benefited from your attendance, and the speaker benefited from people hiring you. That's how the relationship worked back then.

The financial meltdown of 2008-2009, coupled with the evolution of social media ... that combination changed conferences.

In 2007 it was common for trade journals to pay writers. It was common for conferences to pay me to speak ... you'd make $4,000 for an hour of your time, and you brought 25 of your followers at $1,000 each so the conference made money and you made money. By the time I spoke at NEMOA in 2012, vendors were spending $20,000 to get an opportunity to address the audience. Do you see the difference? The conference doesn't have to worry about hustling to find 25 quality attendees ... the conference just needs to find a gullible vendor who has a generous marketing budget, and then has to find 25 warm bodies.

Around 2013, I began receiving emails from conferences, asking how much money I could bring as a speaker? Just like a NASCAR driver who has to bring $20,000,000 in sponsorship dollars, the equation flipped. Not surprisingly, the content at conferences got much, much worse.

As the content got worse, attendees disappeared. I spent my own money to attend NEMOA in 2014 just to see what the mix of paid content and attendees looked like, as I had been told by so many in my client base that they were fed up with attending conferences and being hawked by vendors at every turn. On the first day, the Leadership of a major industry vendor that so darn many of you use cornered me in a conference room, closed the door, told me to shut down my blog, shut down my consultancy, join them, and participate in an effort to "monetize the industry".

Monetize the industry.

Nice job, NEMOA.

Attendance at traditional conferences began slumping, and for good reason. Who wants to be "monetized"??

This trend required conferences to take new and innovative approaches. It became common for sports stars, media stars, or celebrities to be paid to speak about the kind of stuff that actual industry speakers used to speak about. Get five vendors to pony up $20,000 for speaking slots, flip the money to a celebrity, and the celebrity helps bring attendees back. This is no longer a conference where attendees learn ... this is called a "show" ... a place where you learn about retail from Gwyneth Paltrow, for instance. 38,000 people attend, and only 16,000 are actual retail employees. And nobody cares that the majority of attendees aren't retail employees.

Well done.

There's big business in "shows". A "show" that you know and love ... Shoptalk ... was acquired last month for the modest fee of $145,000,000. 

Yes, you read that correctly. One hundred and forty five million dollars to acquire a "show". Everything that is wrong about my industry is outline in the prior sentence.

You probably read this quote as well:

• "... consistent with our goal to acquire product-led market-leading events in large industries that have achieved significant size, secured distinct customer bases and developed compelling value propositions, and that hold tremendous opportunities for organic growth and international rollouts."

Maybe I missed something ... but there's nothing in that quote about saving the retail industry ... the very industry that Shoptalk is dependent on.

Click on this one ... here's a few of the sponsorship opportunities available to you at Shoptalk 2020. Again, this is a "show". It's not a place where you learn how to be great at your job. It's a format that allowed the founders to sell for $145,000,000. Heck, you can obtain a 30'x50' booth for just $150,000. Is it any wonder the poor folks forced to work the booth are so obsessed about giving you a free pen in an effort to get you to learn about why QR codes are making a comeback?

$150,000 for 1,500 square feet. That's just $100 a square foot. You've been monetized down to the square foot.

That's how conferences (#shows) evolved in the past decade.

Conferences are dead. Long live shows!! Enjoy being monetized.

So what now?

Last year I performed a quick video-based presentation for Catalog University. Close to 200 Professionals registered for the one hour event. Nobody had to travel. Nobody ate a lousy $29 hamburger at a hotel bar. Nobody was forced to accept a free pen in exchange for hearing about why QR codes are making a comeback.

Fifteen months ago a talented woman asked me to be a guest on her podcast. To this day I still get feedback from people who have listened to the podcast for the first time. No consulting projects came from the session, nor did I expect a consulting project to happen. I just wanted to see what happened to the content over time. 

In other words, there are myriad ways to get honest content out there for you to consider. 1,550 email subscribers and 1,000 RSS subscribers get access to my 5x/week posts. Another 500-750 people read each post courtesy of Google and their algorithm. Video.  Collaborations. Partnerships. Podcasts (my podcast from 2015-2017 generated an average of 2,000 listens per episode ... didn't generate enough business, but that's my fault for not offering content that led to business).

In our modern world, when one door closes, a hundred vents open.

This year, I'm going to explore some of the vents ... different ideas that may or may not work, ways to grow my business while providing you with actionable assistance. Why cling to an old pay-to-play business model that has been monetized to the tune of a $145,000,000 acquisition when there are so many other ways to thrive?

P.S.:  Your turn ... what do you think I should do? Which "vent" should I pursue in 2020? Contact me at kevinh@minethatdata.com or send me a message on Twitter @minethatdata.

The New Channel

Incumbent industries make mistakes. When something "new" comes along, the incumbent goes through a process not altogether different than the "5 Stages of Grief".

• Denial:  The new channel is irrelevant. Customers aren't going to change. A survey of 229 loyal customers proves we're just fine.
• Anger:  Those online people are cowboys, working in their own offices not connected to the core business in any way possible. I hate them!
• Bargaining:  If we just integrated the channels we'd get the best of both worlds.
• Depression:  Customers from the new channel are worth so much less, we can't make the p&l work properly.
• Acceptance:  "We're closing 225 stores this year."

New channels come with significant File Power issues.

Think about how online changed retail and/or catalog marketing. In both cases, the incumbent channel made horrible mistakes. I was there, I know. Somebody in the incumbent channel wants to know what future value looks like for the new channel. The data almost always tells us an interesting story ... the new channel yields customers who have lower long-term value (hence, lower file power).

This is where mistakes happen.

The incumbent professional reads the tea leaves and says "we shouldn't go after customers with lower long-term value".

The smart professional does the opposite ... she says "we should acquire twice as many customers from the new channel as we're currently acquiring because we'll increase File Power".

Think about it this way:

• Old Strategy = Acquire 1,000 catalog customers at $15 of value in the next year = $15,000 of File Power.
• New World = Acquire 800 catalog customers at $15 of value and 200 online customers at $9 of value = $13,800 of File Power.
• Smart Strategy = Acquire 800 catalog customers at $15 of value and 400 online customers at $9 of value = $15,600 of File Power.

Which tactic makes more sense to you?

I want the most File Power, don't you?

The new channel typically generates customers at lower future value, which hurts File Power. The smart professional simply finds more customers in the new channel to offset the loss in File Power. The average professional reads the situation incorrectly, and throttles back the new channel, causing the business to fall even further behind on the road to modernization.

File Power Relationships

Recall that a first-time buyer (in our example) had a 34.9% chance of repurchasing on an annual basis (with one month of recency).

Who else possesses this level of file power??

• 2x buyer, recency = 6 months.
• 3x buyer, recency = 9 months.
• 4x buyer, recency = 13 months.
• 5x buyer, recency = 15 months.
• 6x buyer, recency = 15 months.
• 7x buyer, recency = 16 months.

Here's another way to think about the issue. Look at the curves for annual response by recency, for 1x / 2x / 3x / 4x buyers below:

We have an uneven relationship, don't we? A first-time buyer keeps losing file power, and then if the customer purchases the customer quickly gains file power, a lot of file power. Moments later, customer value "depreciates" ... it's like owning a car ... the car depreciates a ton the first year and then keeps depreciating thereafter.

But ... but!  If the customer purchases, the customer "appreciates" in terms of file power.

That's what we sign up to manage ... we're constantly losing file power, then BOOM the customer purchases and we ramp-up file power ... and then we're constantly losing file power once again.

Here's where things get interesting. When you mess up file power (acquire the wrong customer, sell the wrong merchandise, destroy gross margins via discounts), you don't generate the same file power illustrated above. This means that everything that happens downstream is "discounted" ... file power depreciates and the value of the customer is lowered due to mismanagement. The future health of the business suffers.

Think about this issue today ... when you see your favorite brand selling at 40% off plus free shipping, your favorite brand is playing a game of "tradeoffs" ... choosing the increase in the curves (above) to increase file power while losing gross margin dollars. If the net of the two relationships yields positive file power, the tradeoff is worth it.

Hint - the tradeoff is seldom worth it.