But E-Commerce Is Growing, Mobile Is Not Crushing E-Commerce!!!

We live in interesting times.

Almost all of our analytics are campaign-based, point-in-time efforts that horribly mislead us.

Here's an example.  I hear this one, often ...

• E-commerce grew by 15% last year, to $50,000,000.  Mobile, however, is tiny ... it grew by 700%, but is only $3,000,000.  Mobile is nothing.  E-commerce is where it is at.

Might be right, might be wrong.  But this is not how we should look at the issue, is it?

Our old friend, the Migration Probability Table (remember that ... think 2006 - 2007), that old thing tells us the real story.

* Index = In-Channel Rebuy Rate divided by Total Rebuy Rate

If your table looks like this, e-commerce is finished.  No, not finished in 2013, but in the long-term, it's toast.  This table shows us that customers are leaking out of e-commerce into mobile, but the mobile customer is more likely to stay within mobile than within e-commerce.

This, by the way, is exactly what the catalog-to-ecommerce table looked like ten years ago.  Catalog was finished.  No, not dead, but catalog was destined to become the niche-favorite of Judy's generation.  Jennifer was leaking out of catalog into e-commerce.  She never looked back.  Amazon and Google thank her for her patronage.

Now, if your table looks like this, you have a different set of issues:

There are two things that could be happening in this instance.

1. Your mobile experience stinks, so customers don't go back to it.
2. Your customer is older, and doesn't want to stay with mobile, she'd prefer to stay with the channel she is comfortable in.

This is the way tables looked like for catalogers with 55+ year old customer bases, back in the day (i.e. 2003).  Older customers tried e-commerce, didn't like it, and instead shopped catalogs via the telephone.  This happened all the time, and led catalogers to believe they were "right".  And in the short-term, they were 100% right, absolutely.  Today, of course, those same catalogers have a 65 year old customer base that never embraced e-commerce, and they have a 5-10 year window before the whole thing comes crumbling down.

Pundits are going to dip your impressionable frame into a warm bath of mobile body wash.  They're going to tell you what "the customer" is doing, and they're going to scare the living daylights out of you.  They do this to generate page views, Twitter followers, and to enhance their own thought leadership position in the industry.

Don't listen to the lizard logic they spew at you.

Do the analysis yourself (or hire me, click here now).  You will see, immediately, what your future holds.  If mobile is going to crush e-commerce, your table will look like the first table in this blog post.  If mobile is not going to be something that crushes e-commerce, your table will look like the second table in this blog post.

Either way, you'll know the truth, while others speculate.

Don't you want to know the truth?

How Will I Know If Mobile Is Crushing E-Commerce?

Let's go old-school, way back in 2001?  Remember 2001?  Pink topped the charts with "Get The Party Started".  By the way, there was a ton of chatter about e-commerce.

My boss was President of the e-commerce / catalog division at Nordstrom.  He believed that call center sales could continue to grow, in spite of e-commerce.  The data did not support his belief.

To support his hypothesis, he asked me to run a query for him.  He wanted a segment of customers that were "identical", and I mean "identical" in historical quality ... like 4 historical purchases for a total of $600, all generated via the call center.  Then he wanted customers in this segment to make a decision in, say, December 2000 ... half decided to purchase via the call center ... half decided to purchase via e-commerce.  Once this audience was defined (about 2,000 customers out of maybe 1,500,000 twelve-month buyers), he wanted to measure spend across channels in the next twelve months.

His hypothesis:  The call-center buyer who switched to e-commerce would go back to the call-center.

The results:  Not so much.

• Call Center Buyer Switching To E-Commerce = $35 at Call Center, $85 via E-Commerce, in the next 12 months.
• Call Center Buyer Staying With The Call Center = $110 at Call Center, $10 via E-Commerce, in the next 12 months.

This told us that the call center was dying.  It did not mean that catalogs were dying ... though our mail/holdout tests also proved that catalogs, too, were dying.  Mail/holdout tests showed that when the customer switched to e-commerce, the customer started buying without needing a prompt from catalogs.

You should have seen the faces of the old-school folks in the room (many of whom were former Lands' End executives who had catalog marketing in their blood) when these two facts were presented, in tandem:

1. When a customer switched from the call center to e-commerce, the customer spent the majority of future revenue via e-commerce.
2. When catalogs were not sent to e-commerce customers, e-commerce customers purchased anyway.

It's one of those "I can see the future, I don't like the future, therefore, the messenger of the information must be fired" kind of looks.

Few people embrace a message that leads to the logical conclusion that the job that they do is being eliminated by technology.  What would you do if somebody told you that your job, as currently configured, would not exist in a few years?  You might not feel terribly comfortable about the message, right?

This brings me to e-commerce.

In the next five years, there are going to be two camps, each fighting for the future of commerce among Jasmine's generation.  Here they are:

1. E-commerce is part of a complex ecosystem called "omnichannel".  Without e-commerce, omnichannel, and mobile, fall apart.
2. Mobile will reinvent commerce, and may obliterate e-commerce.

You can understand which camp is winning among your customer base by running the query I was asked to run way back in 2001.  Take customers who were loyal e-commerce buyers, segment them, and choose customers who are very equal.  Split them into those who continue to buy via e-commerce, and those who switch to mobile.  Then measure future spend by e-commerce or mobile.  For the moment, ignore all of the pundits who tell you that all e-commerce channels influence mobile and therefore cause you to not be able to run this query ... you're running this query to understand if the physical channel preferred by the customer changes.

If you find that the customer goes back to e-commerce after a mobile purchase, then your business is leaning to the "omnichannel" view of the world.

If you find that the customer stays mobile and doesn't spend a lot via e-commerce, then your business is leaning toward "mobile will reinvent commerce".

By the way, the results of this query change as time progresses.  What we saw at Nordstrom in 2001 did not become apparent to many catalogers until 2005 or 2006.  Keep running the query.  Multichannel was a concept that was temporary ... it only mattered while customers were making a transition, and was apparent only when the transition started.  Almost nobody talks anymore about the critical importance of having a catalog in a multichannel strategy, because the transition is complete.  This pattern of renewal is likely to happen again with e-commerce ... it is currently being labeled "omnichannel".

Don't let the pundits tell you what "will" happen.  Let your customers tell you what "is" happening.

10 Important Questions

Post this article in your cube/office, and see if you can answer each question.

Number Ten = Can I make enough profit after my customer has been with my business for one year, so that I can pay for the cost to acquire the customer?  This question is tough to answer in most analytics packages.  Most people don't know the answer to this question.  Most people are more receptive to this question than "what is the lifetime value of a customer?"

Number Nine = Can I generate enough profit once a new product survives twelve months to pay for new products that fail to be embraced by customers?  Same question as number ten, but from a merchandising perspective.  Most folks don't look at merchandise this way.  It's time we look at merchandise this way.  

Number Eight = Did the new items introduced last year outperform the items your merchants killed last year?  In maybe half of the businesses I analyze, this is a serious issue ... not enough new products are being developed, and the new items being developed do not outperform older items enough to fuel the future of the business.

Number Seven = How has the average age of my customer changed in the past five years? If your customer is aging 0.5 years to 1.0 years for every 1.0 year that passes, well, then you have a problem.  And the faster your customer is aging, the less likely that social / local / mobile strategies will have any impact on your business, further trapping your customer file in the year 1999.  I run into this problem, frequently ... by analyzing data or by fielding calls.

Number Six = Am I overly dependent on a small number of high-performing items?  It's not uncommon to see a business that generates 50% or more of annual sales on 5% or fewer of total items offered.  Tread carefully if this is your business ... it's kind of like putting all of your retirement money in Apple stock.

Number Five = What percentage of net sales flow through to profit (before subtracting fixed costs)?  This metric, called the "flow-through rate", dictates everything marketers do.  This is a great question to ask an interview candidate.  Ask the candidate to guess your flow-through rate, it will tell you a lot about the business acumen of the candidate.  By the way, if you work at a publicly traded company, then the data is readily available in your 10-K and 10-Q statements, so go find out what your percentage is!

Number Four = What will we do to please the customer in the ninety days following a first purchase?  Almost all of my projects show that as many as half of first-time buyers who will ever purchase again do so within 90 days of a first purchase, frequently adding-on items complementary to the items sold in a first purchase.  This is a critical time in the customer life-cycle.  Focus on this timeframe before your competition capitalizes on it.

Number Three = What percentage of last year's purchasers buy merchandise again this year?  This rate dictates your whole business model.  Hint - 70% of my clients have an annual repurchase rate below 40%, and most of these businesses are highly profitable.  A low rate does not indicate a loyalty problem.  Rather, a low rate helps indicate the frequency of the problem a business solves for a customer (see number one below).

Number Two = How will customers learn about the merchandise I sell?  This question is actually very difficult to answer.  It requires a marketer to think.  We know all about tactics (paid search, word of mouth, catalog co-ops).  Not many of us have a holistic strategy for informing customers about the problem that we solve (see number one below), and the path that leads the customer to problem resolution.  This is how we need to be thinking about customer acquisition ... don't call it customer acquisition, call it problem resolution, and see where it takes you.

Number One = What problem does my business solve?  If you were eBay, you might answer "we connect customers looking for hard-to-find merchandise with those who sell hard-to-find merchandise".  How would Starbucks answer this question?  Forrester Research?  Orvis?  L.L. Bean?  Take L.L. Bean, for instance.  What is the problem that they are solving?  Then think about their solution.  Is their solution substantially better than Lands' End, Gap, Eddie Bauer, J. Crew, Talbots, Chicos, The North Face?  What happens to L.L. Bean if the customer no longer has the problem that L.L. Bean solves?  This topic might be worthy of a half-day executive workshop, don't you think?  And I'm not picking on L.L. Bean, because obviously they've figured out the problem they are solving, or they wouldn't have been around forever. I'm asking you to view the question through their eyes, then to translate the thought process to your business.

It's pretty important to be able to answer all ten questions, don't you think?

Dear Catalog CEOs: Clario

Dear Catalog CEOs:

I wouldn't need to address this topic if it didn't keep coming up.

• "We're looking to cut back on catalog expense.  We don't know whether we should choose you, Kevin, or Clario Stream?  The Clario folks sound impressive, but the content on your blog is also impressive.  Help us make the decision."

This is a funny question (came up three times in one day last week).  Most of my clients hire me outright (they call, we talk, they choose me on the spot).  About 25% of my potential clients demand an RFP, then compare me to other vendors.  Frequently, I'm told that I beat Clario, or Clario beat me.

In other words, Clario is my #1 competitor.

How do you treat your #1 competitor?

I'll tell you how to treat my #1 competitor ... hire 'em!!

If your goal is catalog contact optimization, they will do a fantastic job for you.  Clario applies cannibalization rules (if you don't agree with the concept of cannibalization, don't work with Clario, it's the secret sauce that makes their methodology work) to your contacts, at a customer level ... they model customer response, and they turn circulation selection into a turnkey, cloud-oriented process.  They'll make you a fortune.  You'll barely have to do anything.

I've been hired a few times to evaluate Clario's performance.  In each instance, I strongly defended Clario - and remember, these companies could easily have chosen my algorithm over Clario's and probably would have had I not been kind - but if your competitor is doing a good job, you need to praise the competitor, publicly ... it's an outcome of having faith.

There are consistent criteria where companies hire me instead of Clario.  I'll document what those criteria are:

1. Client wants control over catalog circulation, doesn't want a black-box solution.
2. Client wants accurate forecasting of demand at a catalog level, and at an annual level.
3. Client wants accurate measurement of sales driven to retail, paid search, email, online, affiliates, mobile, across different catalog optimization strategies
4. Client wants simulations of marketing/merchandising interactions.
5. Client wants a five-year forecast model that illustrates where a business is headed if major catalog circulation changes are made (by the way, I've been hired to forecast the long-term impact of Clario's decisions ... those are fun projects).
6. Client wants to thoroughly understand the interaction between marketing strategies and merchandise category performance.
7. Client wants to know the % of sales that will still exist online if catalogs are discontinued.
8. Client wants to know the % of sales that will still exist in stores if catalogs are discontinued.
9. Client wants to know the proper customer acquisition investment strategy to grow the business.
10. Client wants geek-free communication ... no technical terms.
11. Client wants to know the impact of pricing strategy on marketing investment.
12. Client wants an easy and actionable "grade" to put in the database ... A/B/C/D/F ... a grade with circulation intelligence built-in.

As you look through the list, something becomes very clear.

• Pick Clario if you want the very best contact optimization algorithm.
• Pick Kevin if you want highly profitable contact optimization algorithms coupled with ad-hoc customized requests, channel knowledge, an in-depth understanding of "why" things happen across channels and merchandise categories, and a forecast of the future.

Either way, you're making a smart choice.  It's really just an issue of what you are looking to accomplish.

Thoughts?

Omnichannel: A Response To The Mobile Threat

There's a great quote in the movie "Moneyball".  Billy Beane meets with John Henry, owner of the Boston Red Sox.  Mr. Henry says this (in the movie), when discussing Mr. Beane's new way of analyzing talent:

• "I know you're taking it in the teeth out there, but the first guy through the wall, he always gets bloody.  Always.  This is threatening, not just a way of doing business, but in their minds, it's threatening the game.  But really what it is threatening is their livelihoods, it is threatening their jobs.  It's threatening the way that they do things.  And every time that happens, whether it is in government or a way of doing business or whatever it is, the people who are holding the reigns, they have their hands on the switch, they go bat s**t crazy."

Ten years ago, this was "multichannel".  Catalogers and Retailers saw the threat posed by e-commerce.  They felt threatened.  E-commerce threatened their jobs.  So, they invented "multichannel".  By forcing e-commerce to be part of the catalog and/or retail ecosystem, they protected their jobs.  This wasn't done because it was right for the customer, for if it were right for the customer, catalogers would have crushed Amazon and eBay, and Borders / Barnes & Noble / Circuit City / CompUSA / Blockbuster would have crushed Amazon and Netflix.  No, this was done to protect jobs.

Today, the phrase is "omnichannel".  E-commerce brands and Retailers see the threat posed by mobile.  They feel threatened.  Mobile threatens their e-commerce and retail jobs.  So, they invented "omnichannel".  By forcing mobile to be part of the e-commerce and/or retail ecosystem, they protect their jobs.

Instead of forcing mobile to be part of an ecosystem (benefiting us), why not let mobile find a future for itself (benefiting the under 40 year old customer)?  While we work on diligently integrating mobile with the rest of the business, making sure pages look great on any device, making sure we track the customer all over the digital ecosystem, somebody age 18-34 will most assuredly invent the future that those who are currently age 18-34 desire.

Discuss.

Gliebers Dresses - An Omnichannel Discussion

As you already know, Gliebers Dresses is a fictional account of an Executive Team struggling with management of the future of a traditional catalog business.  If business comedy is not your thing, then move along, there's nothing to see here.

But if you want to hear the team have an omnichannel strategy discussion with Woodside Research sales executive Ashley Pearson, just click here to download the latest episode.

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?