Story: Omnichannel and Discounts

"In order to compete with Amazon, we've got to be omnichannel, we must digitize our business or die."

Simulated Quote From A Simulated Executive. January 15, 2014.

In the image, Yankee Candle is cleaning house! Up to 75% off, signed all across the front of the store. In fact, I count twelve (12) signs that I can see - and you have to admit, 40% of the store has been blocked by two of the giant 75% off signs, so who knows how many signs are back there?

Omnichannel advocates generally love this - especially when we visit the website, and see 75% off as well.

And, no need to go to a mobile screen shot, but rest assured, you can save 75% there, too.

Integrated campaigns across channels, common creative, same product. You're communicating, across the board, that the customer shouldn't pay anything close to full price.

During the sale, Yankee Candle offered this item (which sold out) at 50% off.

Since the item is sold out, I checked out Amazon, where, yes, the item is available, at a much higher price.

It takes a lot of mental bandwidth to sell like this - to integrate campaigns and timing and vendors and creative and communications and signage, all to communicate deep discounts (or not to communicate discounts via Amazon but to do so on your own site). And we don't have a lot of evidence that profitability improves, do we? Go look at any publicly traded company, and compare gross margin rates to profit rates - do a longitudinal study over a decade, and you'll see that all of this integration is virtually pointless, from a profit standpoint.

Go look at this little ditty from Best Buy (click here). But read this one first (click here).

Wow.

Let's get this right. Best Buy, by all accounts, does everything the experts want them to do. E-commerce and Retail, linked together? Check. Social Media? Big Check!! Mobile experience? Absolutely. Price matching - low prices? You Bet!

You must discount - "table stakes", as it has been called. The experts (who get more page views the more they tell you what you have to do) tell you that you must discount - so we all do it. Then the strategy fails (click here). 

Now what the heck do you do?

Best Buy says they will grow e-commerce (not hard to do), it will work on personalization (harder to do), customer segment targeting (easy), and growing Geek Squad. Did you notice that the word "merchandise" is completely missing from the 2014 strategy? It's discounts and CRM from here on out. That's the story. 

That's the magic of omnichannel.

You almost never hear of the importance of merchandise from omnichannel experts.

Story is increasingly important. If you sell the same stuff as everybody else, and you discount like everybody else, and you're tech team wants to digitize everything into a CRM database that delivers a 25% off coupon to the right customer at the right time, then it's all you have left.

Do you want the story of your brand to be large, percentage off signs?

Or do you want the story of your brand to be something else?

Discuss.

Service: Looping Through The Contact Strategy Algorithm

Ok, now you're interested!

You want to know what, exactly, I'm doing.

Say I have a customer who is forecast to spend $20 of catalog demand on 12 contacts. Also assume that this customer will spend $10 on 250 email contacts.

If I want to bump up the catalog side of the strategy to 15 contacts from 12, I use a law of diminishing returns (based on prior test results -  not highly inaccurate matchback outcomes) to estimate annual catalog demand. In this example, annual catalog demand goes up from $20.00 to $22.36.

Next, let's say that I want to bump up the number of email contacts, from 250 to 300. Again, I use a law of diminishing returns (based on email mail/holdout test results, not opens/clicks/conversions). In our example, annual email demand goes up from $10.00 to $10.47.

Then, we have to account for the fact that additional catalog contacts will drive additional email demand, while additional email contacts will cannibalize catalog demand. I know these relationships from a ton of mail/holdout tests. In our example, catalogs will drive an extra $0.10 of email demand, while email will cannibalize $0.08 of catalog demand, yielding a net increase of $0.02 across channels.

Next, we calculate profitability. We factor in the additional cost of three more catalogs, we factor in the additional cost of 50 more email campaigns, and we factor in the additional cost of paid search clicks generated by additional catalog/email marketing activities. In our case, profit drops, from $2.43 per customer to $1.47 per customer. Clearly, we're moving in the wrong direction!

In fact, in our example, the most profit is generated by sending just 3 catalogs, and 250 email campaigns.

Why go to all this trouble?

Because 99% of B2C catalogers are GROSSLY OVERMAILING customers, even after working with Clario or another credible vendor who goes beyond simple models and RFM segments.

In fact, if you factor in the paid search costs, you'll find that you're over-mailing by 10%, right off the bat, +/-.

My contact strategy work now includes catalog contacts, email contacts, and the impact on the paid search budget. All three elements work together, interacting with each other. The result is beautiful. And you need to be doing all three elements, simultaneously. If not, you're over-mailing, badly in most cases.

Contact me (kevinh@minethatdata.com) for your own contact strategy model!

Service: Contact Strategy Management, With Paid Search

Here's the interesting thing about paid search. If you don't execute catalog marketing programs, and if you cut way back on your email marketing contacts, you stop driving traffic to Google. And when you stop driving traffic to Google, you stop paying Google. And when you stop driving traffic to Google (and Amazon), e-commerce-only businesses and retailers suffer.

In other words, if you are going to come up with the appropriate catalog + email contact strategy, at a customer level, you have to factor in the impact of catalogs and emails on paid search.

Take a look at the image above. This customer segment received 12 catalogs and 250 email campaigns last year. But we have to factor in the following:

• How catalogs drive volume to email.
• How email campaigns cannibalize catalogs.
• How catalogs drive traffic to Google, traffic you have to pay for a second time.
• How emails drive traffic to Google, traffic you have to pay for a second time.

After we account for each factor, we get the "Total Demand" grid outlined above. And after factoring in catalog costs, email costs, and paid search costs, we get the "Total Profit" grid.

Which strategy is most profitable?

• 3 catalogs, not 12.
• 250 email campaigns, same as last year.

This is the direction my projects are heading in, during 2014. A handful of lucky clients got to beta-test this technique at significantly reduced rates in late 2013. Now I'm diving in, head first, by assigning the optimal contact strategy, at a customer level, based on an evaluation of every combination of catalog contacts and email contacts, factoring in the impact of each contact strategy on the paid search budget.

Fun stuff, eh?!

A Walk Through The Mall

Let's take a walk through the mall for a moment.

That's a pretty clear message, don't you think?

Or this one:

Lotta savings there, don't you think?

January is clearance month, you're getting rid of stuff. You tell me that you "can't sell anything at full price in January". Or December. Or November. Or June. Or July. Or August.

I know, I know ... it never ends ...

Taxes and apps and discounts at Sears.

Good time to get a candle! Better than before Christmas.

Good question! Why shop anywhere else?

Why shop anywhere else when everybody else is offering you the opportunity to pay less?

Well, not everybody.

J. Crew applies a different story.

Go inside J. Crew, and you still see discounting and clearance and all the stuff leaders love:

It's just that the story is different. Different. Not red, but black on white, congruent with all other signage. And the store front is clean. The story is about the merchandise, but business must happen.

Think about that, for a few moments.

Here's a couple of stories for you:

I know, I'm biased. I worked for Nordstrom. They don't count ... they generate more than a billion dollars of pre-tax profit at between 10% and 15% EBT as a % of sales. Doesn't count. It's fashion, they can get away with over-charging the customer (even though you buy their stuff elsewhere in the mall, from competitors, at the same price). Show me somebody else.

What is the story Lego is telling the customer?

85% of the mall is communicating a story.

A minority of retailers communicate a different story.

What story are you communicating to the customer?

Do you think the story you're communicating resonates with the customer?

Story

Take a look at a screen shot from Zappos from December 20:

Every image, every link, every sentence communicates a story. Zappos is telling you why you should buy from Zappos. Now, you may not like the story - you may not care for Coach, or you may not ever buy Coach from Zappos - that's fine. But it is still part of the story - from the penguin and showshoe in the logo to guaranteed Christmas delivery to advertising Coach as a way of communicating a broad merchandise assortment, Zappos is telling you a story.

Story is going to be critically important, moving forward. Story is where Social Media has a place. Story is where the marketer matters. Story is where the creative professional regains authority.

Here's L.L. Bean's Pinterest page - what do you "feel" when you look at this?

You can certainly feel the outdoor spirit of L.L. Bean, can't you? And based on how often each image has been pinned, you can get a feel for the imagery that customers prefer. If I'm in the creative department, this information is GOLD! Merchandising, Creative, Marketing, and Customers are all working together to tell the L.L. Bean story.

Hint - the story cannot be told without Merchandising and Creative. This is what is different than the past ten years ... previously, we let Marketing do the heavy lifting. Going forward, the Merchant must have a point of view, the Merchant must lead, with passion, demanding that her Story be told. The Creative professional must translate merchandising passion into imagery that the customer cares about. The Marketer blends a fusion of Merchandising and Creative genius, making the Merchandise and/or Story easy to share.

This requires a collaboration that has largely been missing for the past decade.

Here's an example, from J. Crew Discovered (click here).

Heck, they go so far as to tell you the story behind their gloves, don't they? In fact, J. Crew tells a story, and then Karla Gonzales (on Pinterest) spreads the story for J. Crew (see below):

Not only is Karla spreading the story for J. Crew, but J. Crew gets to see what Karla likes - this feedback loop helps the Merchandising, Creative, and Marketing team identify trends, product opportunities, and creative strategies.

This all starts with the Merchant having passion for a product. It is fueled by a Creative professional who writes heartfelt copy and generates appealing imagery. The Story is spread by the Marketing department, and is then moved through the Social ecosystem by the Customer.

This collaborative Story ... Merchant + Creative + Marketing + Customer ... has been largely missing for the past decade. Yes, social has been there to spread the word, but the strategy behind the story has been largely missing. In 2014, the Story becomes critically important.

Business success in 2014 comes from a three letter acronym:  MSS.

Merchandise + Service + Story

You recall my discussion about Clarity (click here).

I have enough clarity now to structure discussions around what I call "Merchandise + Story + Service".

In other words, we have our three ladies:

• Judy, now 61 years old.
• Jennifer, who just turned 45.
• Jasmine, who is 29 years old.

The way we market to Judy, Jennifer, and Jasmine is fundamentally different. We all know this, intuitively, in spite of everything we read that tells us we must do everything for every customer to be successful. We know Judy doesn't care about Foresquare, we know Jennifer likes Amazon, we know Jasmine doesn't care about catalogs.

So let's simplify the message.

Above, I outline what I call the "MineThatData Strategy Grid". We have our three ladies (Judy, Jennifer, and Jasmine). And across the top, I outline what continually comes up in my projects ... Merchandise + Service + Story.

Merchandise, of course, is what we sell. Too few of us even bother to think about it, but I assure you, customers think about it. Merchandise is probably responsible for 70% of our success. It probably gets 7% of our mental bandwidth. In my projects, the merchandise purchased by Judy, Jennifer, and Jasmine is fundamentally different. Perform a demographic overlay, and discover this truth for yourself.

Service is all about how we take care of the customer. Live chat, your social media response team, the call center, not sending catalogs to Jasmine, not forcing an app upon Judy, how you price merchandise, everything about taking care of your customer folds into the Service category.

Story is critically important. If you sell the same merchandise that Amazon sells, and you can't beat Amazon's delivery options, then Story is the only thing you've got. By the way, the Story that motivates Judy is fundamentally different than the Story that motivates Jasmine.

In 2014, we're going to talk a lot about Merchandise + Service + Story, especially as it relates to Judy, Jennifer, and Jasmine. Your job is to fill the nine squares in the image above, crafting your strategy for each cell.

Project Focus - 2014

I created this image a year ago, and for good reason.

Look across the bottom row of the pyramid ... Merchandise ... Creative ... Finance ... (Customer) Service.

How often do you read about those four, key, foundational tactics?

In 2014, my projects are likely to center around a concept I'm calling "MSS" ... or "Merchandise + Service + Story".

Let's start with Service. For somebody with my skills, customer service means saving catalog expenses and adjusting email marketing contacts. Now, you're familiar with this, correct?

Well, in 2014, I will combine catalog contact strategy with email contact strategies and paid search budgets, yielding a combined contact strategy that increases profit and increases the likelihood of a customer (Judy / Jennifer / Jasmine) being contacted appropriately. Your favorite vendors do not have an algorithm that does what my algorithm will accomplish. Contact me now (kevinh@minethatdata.com) to get a head start - I've just finished up a series of projects that resulted in the development of a new product - Hillstrom's Contact Strategy.

The impact of the contact strategy yields a future trajectory that may be unanticipated.

In my case, I will help fulfill the service side of the "MSS" equation by showing you how your attribution tactics result in a five-year business trajectory that may not be anticipated. Too many of us are looking backward, busy assigning beans to various channels. I care about what the beanstalk will look like. I hope you join me on this mission.

You remember this topic, right?

Well, that's the "Merchandise" portion of the equation. It's the most important aspect of the businesses we manage, responsible for 70% of our success. And it's essentially ignored by everybody but the merchandising team. In 2014, this will be a major focus of my work. I will demonstrate to all of us just how important merchandise is to our businesses. Interestingly, the evolution of merchandising into old-school e-commerce channels (search, email) resulted in a shrinking of the relevant merchandise assortment. Mobile is only going to exaggerate this dynamic - you can only focus on "winners" to "optimize" the mobile experience. This will cause untold long-term problems for businesses focusing on Jennifer, and especially on Jasmine. I will work on a lot of merchandise-centric projects in 2014. Hint - new items are critically important!

What I am going to experiment with in 2014? It is something that I call "story".

Merchandise is obvious ... 70% of the total equation ... Service is all about how you deliver your value proposition to the customer - it might be 30% off plus free shipping, it might be delivering a package to your home next-day, it might be the work I do on forming a contact strategy for each individual customer. Story, however, is very different.

E-commerce is easily the "coldest" of all channels. There's almost no story - and how could there be? The minute you try a new story, customers revolt, you measure it in real time, and you go back to what you were previously doing ... calling it "optimization".

Story, based in merchandise and service, amplifies all that is good about a business. Think Apple, for a moment - think about their story, how it amplifies merchandise sales, how it creates social media discussions that are measurable.

Or think about how businesses we know use Pinterest (click here). Here, the story unfolds on Pinterest (as opposed to being a Pinterest strategy). We have everything backwards. When we have a story, mobile and social become useful. When we don't have a story, sales struggle, so we're stuck with 30% off plus free shipping - which becomes the story (this business is desperate for my business).

Story is maybe the only place where a catalog brand has an advantage.

Story is a place where e-commerce is at a supreme disadvantage, compared to retail.

Story has yet to be defined in a mobile world.

Since Story will be so important, as a differentiator, going forward, I have no choice but to spend time researching it in 2014. It is likely that I'll offer experimental products at significantly lower-than-normal rates in 2014, products that center on the stories we tell.

In 2014, my projects will hang off of the "MSS", or "Merchandise + Service + Story" framework.

• Merchandise via Merchandise Forensics.
• Service via Hillstrom's Contact Strategies - optimizing catalogs + email + search.
• Story, showing how creative and social and mobile and imagery lead to improved merchandise/marketing productivity.

This thought process (MSS) aligns across our three personas ... Judy, Jennifer, and Jasmine. There should be a strategy for Merchandise, Service, and Story for each persona, leading to nine different tactical directions in 2014.

That's where I'm headed in 2014. Get your project requests in early in 2014, because my calendar is rapidly filling up!! (kevinh@minethatdata.com).