I Am In New England on June 27: Got A Few Hours?

A couple of changes to my travel itinerary yield a rare opportunity ... an open slot on my travel calendar!!


If you are in Vermont, New Hampshire, Massachusetts, Connecticut, or maybe even Southern Maine, why not take advantage of a free opportunity to discuss your business with me?  I'm offering a free session from 1:00pm to 3:30pm on June 27, at your office.


This offer is first-come, first-served, so act immediately.  Contact me by email ... click here now!

Merchandise Forensics: Age of Item Purchased

Not everything in life has to be hard.


Go run a simple query.  Calculate the average age of each item purchased in the past year by twelve-month buyers.  It's called "Average Item Age", or "AIA".


Look at this company.


Customers who purchased just one time purchased items that were about two years old.


Customers who purchased five or more times in the past year purchased items that were between 1.00 and 1.25 years old.


First-time buyers purchased items that were "older" than those purchased by existing customers.


What does this tell you?


First, it tells us that infrequent buyers purchase safe items.  This business can respond to this fact ... personalize email messages to infrequent buyers, recommending popular old-school favorites.  Recognize website visitors ... a first-time visitor is presented with safe favorites.


Second, it tells us that new buyers purchase safer items than do existing customers.  This business can respond to this fact.  If it is a catalog brand, you create a prospect catalog loaded with "winners" ... make it easy and risk-free for the customer.


Third, it tells us that the best customers become bored, purchasing new items.  This business can respond to this fact.  Email campaigns should continually advertise newness to best customers.  If you have a catalog channel, create a small, targeted version of the catalog, loaded only with new products, sold to best customers (yes, I understand that this strategy "doesn't scale" and doesn't capitalize on the efficiencies of your typical 96 page catalog ... so what, try it).  Create versions of the home page for your best customers, loaded with "what's new".


It's not 1983 any more, folks!  Analyze the merchandise customers purchase, and react to the reality that different customers have different needs.  Make Merchandise Forensics work for you!

Dear Catalog CEOs: Omnichannel Power Rankings

Dear Catalog CEOs:


Maybe you've read those Power Rankings on ESPN or elsewhere ... wins and losses don't actually matter, what matters is how a group of sportswriters ranks teams!  Well, at least it's a good way to generate page views.


We'll do that here, from ten to one.  Let's not take the actual rankings too seriously, ok?!  I mean, it's probably not worth debating whether Social Media should move up or down a notch!


#10 = Multichannel:  A Woodside Research analyst recently stated that "Multichannel is Dead".  This was fun, of course, because for a decade prior, Woodside Research told marketers that they "had" to be Multichannel or they'd be ... wait for it ... Dead!!!!  Multichannel never truly existed.  Multichannel was a concept created by vendors, bloggers, research organizations, and trade journals to tie the online future to the offline past.  Sales did not increase if you linked everything together in a delicious blend of integrated goodness ... if sales did increase because of it, Circuit City's industry leading "buy online, pickup in stores" would have guaranteed their future, right?


#9 = Omnichannel:  It's hard to believe that you can have an Omnichannel Power Ranking and Omnichannel only ranks at #9, but that's the case.  Have you heard all this blather about "Omnichannel" coming out of Woodside Research and other pundits?  Tell me if this sounds familiar to you.  Online is being overtaken by mobile/social/local, so instead of moving to the future, you have to be "Omnichannel" ...  you have to do offline and online and mobile and social and local.  Oh boy!!!  It's the e-commerce folks demanding a seat at the table of the future, trying to link the past (e-commerce) to the future.  We've been there, before (see #10 above).  It doesn't work.  The more you integrate, the harder it is to execute ... and the harder it is to execute, the easier it is for single-channel newbie organizations to own the future.


#8 = Catalogs:  Yes, I know, you're offended that catalogs only come in at number eight.  But have you had a chance to read this little ditty from the DMA via Multichannel Merchant (click here)?  The authors conclude that even though response rates are down 25% over the past decade, direct mail still rocks!!  The author cites that, even with lowered response rates, direct mail will still have an important role well into the future.  Really?  Really?  What happens when response rates drop another 25% this decade?  What happens when costs increase but response drops another 25%?  What happens when direct mail users (55+, rural) become 65+, rural users?  How we can conclude anything other than an unprecedented transformation of an industry is beyond me?!


#7 = Social Media:  Has there ever been a technology that is more hyped than social media?  If you cater to an under-35 audience, social media is built into the fabric of the brand, much like a call center is critical to a catalog brand.  If you cater to customers over the age of 45, social media hype borders on being fraudulent!  If you cater to a customer over the age of 45, you're told you "must" embrace social media or "tempt obsolescence at your own risk".  We have social media all wrong ... we attribute word-of-mouth, an amazing marketing strategy that has been around since Adam and Eve, to social media.  Separate the two, and social media is much less influential.


#6 = Search:  Pundits say that search is dead, lamenting Google's theoretical demise.  Here's the deal with all of this fluff.  I don't know why we assume that every individual in the United States will use every technology at the same rate.  Each channel has unique advantages to specific demographic profiles.  Search matters to Jennifer, it's how she hunts for information.  It's irrelevant that Jasmine trusts friends more than she trusts Google, fine, let her go!  Search is the tool that Gen-X uses to make sense of the internet, just like Facebook is the tool that Jasmine used to make sense of the web.  You don't integrate search into everything, you capitalize on search within the demographic profile that uses it.  Search is just fine with Jennifer's generation.  Figure something else out for Jasmine and Judy.


#5 = Showrooming:  This is the concept that an army of price-sensitive mobile advocates are driving sixteen miles to go to a Best Buy store to research products in-person, then instead of buying the item at Best Buy along with 8% sales tax, the customer either gets in her car and drives another sixteen miles home to buy the item online, or buys the item online, right there in the Best Buy store, while blue-shirted Twelpforce-infused employees offer extended warranties as a competitive advantage.  This is great in theory, except it doesn't pass the smell test in three important ways.  First, if this was truly happening at scale, then we'd see mobile (don't count tablets in mobile, folks, nobody is standing there in a Best Buy store holding a tablet) transactions at more than one or two percent of total e-commerce transactions.  Second, if this was truly happening at scale, Best Buy would be posting -15% or -20% comps, causing a collapse of the entire retail model (the collapse of the entire retail model may well be happening anyway, but that's a discussion for another day).  Third, if this was truly happening at scale, then Best Buy would benefit from "reverse effects" ... meaning that customers would be using Wal-Mart and Target and Frye's and just about any other retailer to showroom for Best Buy, right?  The reality is that we are in the top of the first inning when it comes to figuring out how customers will integrate mobile with retail, but the trend is very important, and will turn out differently than the pundits tell us it will turn out.  Remember, e-commerce pundits told us that retail was destined for the scrapheap ... fifteen years later, retail may be destined for the scrapheap, but e-commerce didn't cause it to happen.  Showrooming won't kill retail, either.  By the way, if you think that showrooming is so darn important, go spend three hours at a Best Buy store, and count how many customers, out of 100, are actually engaged in the process of showrooming.  Seriously, go do it.  Record a video.  The numbers (and behavior) are self-evident.


#4 = Apple:  At some point, we have to classify Apple as a channel of it's own.  They are responsible for tablets.  They are responsible for the iPhone and ultimately for the competition that was caused by the creation of the iPhone, which came from the iPod which transformed the music industry.  An entire industry around apps was created because of Apple.  They integrate across devices, but are self-contained within their own ecosystem ... devices literally speaking to each other ... and you'll soon be controlling you Mac with gestures.  What company, other than maybe Amazon, influences your day-to-day life as much as Apple? 


#3 = Mobile:  Though one can make the argument that mobile, as a channel, is no different than Apple ... mobile / Apple are fundamentally one and the same ... with Android/Google providing mild and directionally similar competition.  If you care about Jasmine, you care about mobile, so you care about Apple.  If you care about Judy, mobile is irrelevant.  And honestly, it's time to toss tablets out of the mobile discussion.  Throw 'em out, folks!  Tablets are a whole 'nuther genre of technology, used differently by people.  When you're walking out in public, maybe at a farmer's market, count how many people are thumbing information into a smartphone vs. a tablet.


#2 = Email:  Sure, email is dead, as the pundits say.  Except, have you noticed that email is the only channel that spans all generations of commerce?  Brands that cater to Judy use email marketing.  Brands that cater to Jennifer thrive on email marketing.  Brands that speak to Jasmine have email as one of the few channels that allows them to push a message to Jasmine. Sure, you only generate $0.10 per email sent to a customer ... but you also send 150 messages a year, so that's $15.00 of incremental demand and $6.00 of incremental profit, per customer, that you wouldn't otherwise generate.  If the channel is dead, go ahead, ignore the volume.  I know of classic direct marketers that generate $10,000,000 of annual profit, but lose sight of the fact that they generate $0.10 of demand per email delivered across a list of 1,000,000 names and 100 campaigns, yielding $10,000,000 of annual demand and $4,000,000 of annual profit ... 40% of total company profit from email!!!  It happens all of the time.  Nobody looks at the data the right way to make the connection.  Those that do look at the data that way have a huge competitive advantage.


#1 = Word of Mouth:  We mistake all channels for the activity that fuels the channel.  Word of mouth matters.  Pinterest, in and of itself, is not new or interesting.  For whatever reason, however, it benefited from word of mouth.  When people talk about things going "viral", they're really talking about word of mouth.  Word of mouth fuels modern online activity, especially among Jasmine's generation.  That being said, word of mouth has always been there.  Catalogers, do you remember when you used to send out two million catalog requests a month?  That happened because of old-school world of mouth!  We spend so much time trying to astroturf "viral" activities, without ever thinking about what causes word of mouth to happen.  Great products with great and sharable stories ... that seems to fuel word of mouth.  Among Jasmine's generation, there seems to be a resurgence in word of mouth.


Terms that did not make the top ten list:  CRM ... Social CRM ... Net Promoter Score ... Optimization ... Purchase Funnels ... Local ... Personalization ... Relevancy ... Engagement ... Social Search ... Branding ... Infographics ... Big Data ... The Cloud ... Big Data Meets The Cloud ... Private Clouds within The Cloud ... Infographics about Big Data Meeting Private Clouds in The Cloud ... Disruption ... Facebook ... Twitter ... Amazon ... Kindle ... Nook ... Viewthroughs ... Viewable Impressions ... Open-Source ... Virtual Anything ... Pinterest ... Blackberry ... Microsoft ... Yammer ... Content Marketing ... Yahoo ... Digital Analytics, Digital Marketers, and anything else Digital ... Square ... Video on Demand ... Co-Ops ... Social Commerce ... Facebook Commerce ... Instagram ... and an infinite number of topics that render anything that currently exists "dead".

Average Item Age

... or, as the kids call it, AIA.


Average Item Age is simply the average age (years, months, your choice) of the items your customer purchased.


Look at this example:

	AIA	Annual Sales
2012	3.8	$37,493,028
2011	4.3	$33,968,940
2010	4.5	$33,403,884
2009	4.3	$34,504,847
2008	4.1	$37,448,221
2007	3.9	$38,428,122
2006	4.3	$36,483,028
2005	4.7	$33,548,831

Do you notice a correlation?


When sales are up, the average age of the items a customer purchases is between 3.8 and 4.1 years old.


When sales are down, the average age of the items a customer purchases is between 4.3 and 4.7 years old.


This is a business where customers appear to prefer newer products.  When products become stale, sales suffer.


Of course, there are businesses where the opposite relationship holds ... customers trust existing product, and when you throw new product at the customer, the customer rejects it.


What matters, of course, is that you track this metric.


Show of hands ... how many of you know the relationship between Average Item Age and Annual Net Sales?

Coldwater Creek: An Ominchannel Poster Child

Coldwater Creek is a great omnichannel poster child ... a stock price that dropped from $23 five years ago to $0.65 today ... net sales that are down 35% from five years ago ... headed toward six consecutive years of losses.


Meanwhile, Chicos is posting 6% EBIT, running a similar business model to Coldwater Creek.


Coldwater Creek has done everything the omnichannel pundits told them to do.

1. They grew via catalog.
2. The moved into retail, aggressively, taking full advantage of the "bricks 'n clicks" opportunity.
3. They dove into e-commerce, and have credible email, search, and affiliate programs.
4. They cut back on catalog circulation as that channel, as the experts say, "died".
5. They have a mobile platform.
6. They are active in social media.
7. They integrate their brand messaging and merchandise across channels, just like the experts told them to do.

And yet, none of the stuff that the omnichannel experts demand of Coldwater Creek works. 

Explain that one, folks.  How is it that Coldwater Creek did everything the experts told them to do, and it worked exactly opposite of what the experts anticipated?

What matters is merchandise.  Product matters.

If this omnichannel nonsense mattered, then the following would hold true:

• Dell would have doubled sales in a few years because of their laser-like focus on social media (remember, markets are conversations).
• Amazon would be out of business because they don't have a nationwide store presence.
• OneKingsLane couldn't possibly grow from $0 to $200,000,000 by merely curating an assortment that is readily available nearly everywhere else on the planet, especially in retail where 85% of sales still happen.
• Chasing Firefiles wouldn't go from $0 to maybe $40,000,000 in a few years by focusing on a dead channel like catalogs.
• Best Buy would be thriving because of a brick's 'n clicks presence that is fueled by mobile and by the social media star known as the "Twelpforce" ... showrooming would help them because customers would use their mobile devices in a Wal-Mart or Target store to check prices at Best Buy and then buy via Best Buy's mobile site ... if showrooming works in one direction for Amazon, it has to work in the other direction across retail competitors ... right?
• There would be thousands of examples of "engagement strategies" that caused businesses to post +15% sales increases over a "pre-engagement" world.

Omnichannel is nothing more than determining the color of the sprinkles on top of the frosting that rests on top of the cake.  It's something that bloggers, vendors, consultants, and trade journalists talk about to generate page views and to sell projects into clients looking for magic.

All magic comes with a price.

What matters is merchandise.  Product matters.

The Magic of Average Order Value

Let's walk you through an example of why merchandise productivity, expressed via Average Order Value, is so darn important.


We'll use Paid Search as an example.  Here's what happens when you have, say, a garden-variety $100 AOV that hasn't changed much in the past five years ... and next to that column, you have a business that has a $115 AOV, achieved via increased merchandise productivity.

	$100 AOV	$115 AOV
Clicks	1,000	1,250
Cost per Click	$0.53	$0.59
Conversion Rate	1.30%	1.27%
Average Order Value	$100.00	$115.00
Demand	$1,300	$1,826
Net Sales	$1,105	$1,552
Gross Margin	$663	$931
Less Ad Cost	$530	$738
Less Pick/Pack/Ship	$111	$155
Variable Profit	$23	$38

Merchandise productivity is the best friend of a marketer.  In this case, a 15% increase in merchandise productivity causes the marketer to be able to spend more money per click, which drives incremental clicks, causing a 40% increase in demand.


Does that make sense?


A 15% increase in merchandise productivity gives the marketer the ability to spend more per click, causing a 40% increase in Paid Search demand, and in this case, a 65% increase in profit.


Instead of focusing on the gimmick that can be "offered" to the customer, why not invest energy figuring out how to merchandise your site, your landing pages, and your advertising, so that you have the productivity that enables you to spend more money marketing?


Marketing * Merchandise Productivity ... it's a multiplicative relationship.  Take advantage of it.

Dear Catalog CEOs: Average Order Value

Dear Catalog CEOs:


When is the last time you studied how to get customers to spend more per order?


No, not spending time studying with your marketing department.  Those folks want to offer free shipping or 20% off or they want to cross-sell some meaningless items in the call center.  Those are all gimmicks.


I'm talking about real merchandise productivity.  You know what I mean.  It happens when a customer can't help herself, and has to purchase a third item because she absolutely loves the merchandise.


There are four metrics that determine how much a customer loves your business.

1. Annual Repurchase Rate.
2. Orders per Buyer per Year.
3. Items per Order.
4. Price per Item Purchased.

Average order value is a function of (3) and (4), so it is pretty important.

I'm in my local grocery store last week.  At the deli, one of the employees asks how my dog is doing?  Then she prepares a sample of a Vietnamese wrap she prepared.  Then she told me that the wrap was fresh (prepared an hour earlier), so it will taste great.

I walked out of the grocery store with a Vietnamese wrap.  My $174 purchase became a $179 purchase.

I didn't spend $5 more because of a silly coupon or marketing gimmick.  I spent $5 because the merchandise was tasty.

I keep seeing a split in the marketplace.

1. Businesses racing to the bottom ... lowering prices, offering freebies, offering 20% off, trying to achieve "scale" or some other marketing theory that satisfies a fraction of the punditocracy.
2. Businesses focusing on getting customers to love merchandise.

Increasingly, I am seeing businesses that are thriving by bulking up average order value ... not by manipulating it via discounts/promos/gimmicks, but by getting customers to spend more, per order.

Run a rolling twelve month file analysis, and evaluate your average order size over the past seven years.  What drove AOV when it peaked (items per order or price per item purchased)?  What caused AOV to sink?  How do you get your merchandising team, your online team, and your marketing team to focus on getting the best merchandise in front of each and every customer?

Spend some time on this topic, folks.