A Five-Year Forecast Methodology To Determine Which Stores To Close

Below is a brief presentation (23 slides) outlining the methodology I use to determine which stores should be closed.

A Five-Year Forecast Methodology To Determine Which Stores To Close from MineThatData

If you are reading this via email and cannot navigate the presentation, click this link to view the presentation.

And when you need help determining which stores should remain open or be closed, please contact me (kevinh@minethatdata.com) for assistance.

Channel by Age Interaction

You read these research reports or trade journal articles, and they tell you what "the customer" is doing.

"Your customer", however, is not "the customer".  Your customer is different.  So your mileage varies.

Channels help us understand "your customer".  Look at customers who purchase from your call center.

Tall bars represent channel preference.  Not surprising, then, that June (age = 76) prefers shopping via your call center.  Not surprising, either, that Jasmine (age = 28) and Jennifer (age = 44) don't like shopping over the telephone.  If your business is skewed to the call center, well, guess who your customer is?  If your business is skewed to the call center, what does that mean for the future of your business?

How about online transactions, those not attributed to other marketing channels?

This is hardly surprising, either.  The more your business skews to unattributed online orders, the more likely your business caters to Jasmine, or to a lesser extent, Jennifer.  Dark matter, those unattributed online orders, frequently skew to younger customers.

Here's email marketing.

Email peaks with Jennifer, and there's a bump for Judy.  Notice the dip for Jasmine.  Jasmine is different, as we will see later, her email orders shift to other channels, and for good reason.

The next two graphs are for paid search and natural search.

The two graphs are similar, aren't they?  Search is the realm of Jennifer and Jasmine ... with Jennifer skewing a bit to paid search, Jasmine skewing a bit to natural search.

Yes, your mileage will vary.

Let's look at Affiliates.

The mix is changing, isn't it?  In fact, CSEs look similar to Affiliates.  Jennifer is typically looking for free shipping, whereas Jasmine seeks the lowest possible price and free shipping - remember, Jasmine simply doesn't have a lot of money.  Judy doesn't trust Affiliates as much.

Finally, orders attributed to Social Media.

This really skews to Jasmine, doesn't it?

We keep reading that "the customer does everything", so you must be "omnichannel".

Wrong.

Know who your customer is.

Append age of customer.

Track the channels each age cohort purchases from - as you can see in our example, there are clear trends by demographic cohort.

And yes, your mileage will vary.  I'm asking you to do the hard work, the heavy lifting.  Don't read a survey of 994 likely shoppers and make decisions for 250,000 customers.  Do the analysis yourself.  Determine the channels "your customer" prefers.  Then go after those channels.

Thoughts?  Questions?

E-Mail, Paid Search, Portal Advertising, Channels

How do you evaluate and segment customers who respond to e-mail marketing, paid search, natural search, portal advertising, shopping comparison sites, affiliates, and any other advertising channel?

Are these customers fundamentally "different" than other customers?

Do you treat these customers differently across various marketing strategies?

Most important, how do you evaluate the interactions that occur when customers respond to different advertising channels? For instance, should your e-mail marketing strategy be different for customers who respond to both search and e-mail, vs. customers who only respond to e-mail?

New Book: Hillstrom's Multichannel Forensics

Well, the cat is out of the bag!

This morning, I received an e-mail from Amazon.

The e-mail said because I previously purchased a book from a different database marketing author, I might be interested in a book being released on September 30, called "Hillstrom's Multichannel Forensics".

I am interested in the book. I AM THE AUTHOR OF THE BOOK!!!!

I'm guessing I'm not the only person Amazon sent this e-mail to. So it is time to share with you what this new book is all about.

The text is the culmination of twelve years of research into how customers behave in a multichannel environment. Twelve years ago, e-commerce began to impact, then influence, then usurp catalog marketing. Peers at competing retailers and catalogers shared their frustration with me about understanding customer behavior in a multichannel environment.

Vendors and Research Organizations shared multichannel customer facts and figures that were impressive. They seldom told us meaningful information that helped us understand our customers. And if they had meaningful information, you can be sure the information would be highly monetized!

I felt compelled to create a methodology, a framework, for understanding and explaining multichannel customer behavior (in a b2b or a b2c environment).

I strongly believed the methodology should do two different things.

First, the methodology had to explain how customers interacted with advertising, products, brands and channels ... in a way that a CEO or Executive Vice President could understand.

Second, the methodology had to illustrate how sales within products, brands or channels will evolve over the next five years. This allows the CEO or EVP to make decisions today that limit future business challenges.

The combination of these factors became "Multichannel Forensics".

The perfect laboratory for testing this methodology came during my tenure at Nordstrom. In 2005, we eliminated our catalog marketing program. I used this framework, this methodology, to illustrate what would happen to online and retail net sales growth if catalogs were no longer there to support those channels.

The methodology worked!

Since beginning my own consulting practice in March, I've completed multichannel forensics projects for thirteen brands/titles. I'm continually pleased with the way CEOs and EVPs react to the methodology. I'm proud of the way the methodology forecasts what is likely to happen in the future. I love giving business leaders tools they can use to quell challenges from the Board of Directors, or Ownership Team.

There are three ways you can learn about multichannel forensics.

• You can read this blog. I will continue to give examples of how the methodology can be used in real-life settings.

• You can read the white paper, which goes into some level of detail on the topic.

• You can buy the book, and learn the nuts and bolts of the methodology. I want for you to be able to do these projects yourself!
  

• Of course, you can hire me to do a project for you.

I spend considerable time in the book outlining three-channel situations (i.e. catalog/online/retail or telemarketing/catalog/online, as examples). Two-channel and three-channel situations are very common, hence the focus on these topics.

I do not go into the complex simulation algorithms that I use to understand the interaction between, say, ten merchandise divisions and three channels. The concepts in the book are illustrated at a level that allows the reader to build the simulations, if desired.

How might you benefit from this book?

• CEOs and EVPs will learn the current trajectory of the business they manage, and will learn how they might mitigate negative trends.
  

• E-Mail Marketers will learn how their oft-criticized discipline builds long-term sales growth.

• Catalog Marketers will precisely learn the value of catalog marketing in a multichannel environment, in a way that matchback analyses cannot possibly explain.

• Online Marketers will finally be able to show retail leadership how online customers become retail customers, demonstrating how comp store sales growth is influenced by the online channel.

• Web Analytics practitioners and Business Intelligence analysts will be able to see how customer behavior can be analyzed longitudinally (over time), providing value that goes well beyond individual session metrics.

• Multichannel Vendors will be able to identify ways they can provide additional value to the clients they support, value that is targeted at the CEO/EVP level.

Amazon is allowing pre-orders of the book in anticipation of a September 30 release date. In the next two weeks, the book will be available on my publisher's website ... www.forbetterbooks.com. Obviously, Amazon is not part of the purchase process if you purchase the book from my publisher's website, Amazon's profit is reallocated among those who invested time, energy and money in creation of the book.

I invite you to learn more about Multichannel Forensics. Do so at no cost by downloading the white paper, or purchase the book! My thanks go to Don Libey for shepherding this book and my first book (Hillstrom's Database Marketing), for giving the little guy a chance!

Multichannel Forensics White Paper

My articles about 'Multichannel Forensics' have created a lot of interest on this blog. In response to your interest, I created a document that outlines the concept of Multichannel Forensics, and its application to products, brands and channels.

Here is a link to the document: MineThatData's Multichannel Forensics

The document provides a reasonably short overview of concepts from my first book, and from a book I just finished writing, to be released this summer. This is a working document, so please provide your feedback. You are free to share the document with anybody you think would benefit from the information.

For those of you who are trying to understand how customers migrate across products (Books, CDs, DVDs), brands (Banana Republic, Gap, Old Navy), and/or channels (Catalog, Online, Retail), give this document a thorough read.

When Businesses Die

I always find it fascinating to watch what happens to businesses that are on the decline.

Viewed differently, there are four ways that customers interact with products, brands or channels.

• Isolation Mode. Customers stay loyal to this business mode, not opting for other products, brands or channels.
• Equilibrium Mode. Here, customers are likely to try out other products, brands or channels. Usually, customers purchasing from one product area (MP3 players) are likely to purchase from another product area (computer accessories), and vice versa.
• Transfer Mode. This occurs when customers are actively switching out of one product, brand or channel (dial-up internet access), migrating to another product, brand or channel (broadband internet access).
• Oscillation Mode. While rare, customers can switch back and forth between products, brands or channels, on an alternating basis. For instance, a customer purchases a new car, and deals with the sales department. Then, the customer switches to the service department. Eventually, the customer switches back to the sales department, for a new car. The customer is 'oscillating' between channels.

Life is very interesting when businesses are stuck in or slip into 'transfer mode'. How businesses respond to this situation largely determines their success or failure.

For instance, AOL customers transfer out of dial-up internet access, but did not transfer their allegiance to AOL's broadband product. AOL management evaluates the situation, and decides to figure out new ways to monetize their business via the loyal audience they possess.

Other business models attempt different ways to combat transfer. Network television represents an interesting take on this situation. As television customers migrate out of network television to cable, and then from cable to the internet, network television counters the loss of customers by increasing how much they charge advertisers.

Some businesses aggressively recruit new customers, to make up for the customers lost via transfer. As long as new customers can be recruited in a cost-effective manner, and at a rate that is greater than the rate which customers are transferring out, the business can be successful.

Other businesses pass the cost of a failing business on to the remaining set of loyal customers, further accelerating transfer to other businesses. Airlines charge $7 for a small sandwich, or professional basketball teams charge $100 a seat to sit in the lower bowl to help recoup out-of-control salaries. When implementing these strategies, the business must be mindful that there is a ceiling, and once the pricing strategy breaks through the ceiling, the remaining loyal customers will not come back.

At the end of the day, there are a small number of things products, brands or channels stuck in 'transfer mode' can do.

• Create new products and services that customers prefer.
• Acquire more customers than are transferring out of the business.
• Change the business model and associated revenue generation strategy.
• Require existing customers to increase their spend in order to offset customer transfer.
• Reduce expenses by reducing quality, outsourcing capital, or reducing capital expenditures.
• Sell the business.
• Close the business down.

What are your thoughts on this? Are there businesses you enjoy following as they deal with the transfer of customers to other products, brands or channels? Are there examples of what businesses can do that I failed to include in my list? What are your thoughts?