How To Specifically Calculate Merchandise Productivity

The overwhelming theme from your feedback over the past day is this:

• Please show me how to calculate Merchandise Productivity.

Here, then, are the specific instructions for how to calculate Merchandise Productivity for April 2016.

Step 1 = Select all customers who bought exactly two times between April 1, 2015 and March 31, 2016.

Step 2 = Calculate the average amount spent by this audience between April 1, 2016 and April 30, 2016 (include all of those who did not buy from 4/1 to 4/30 in your calculation). Pretend this amount is $11.00.

Step 3 = Select all customers who bought exactly two times between April 1, 2014 and March 31, 2015.

Step 4 = Calculate the average amount spent by this audience between April 1, 2015 and April 30, 2015 (include all of those who did not buy from 4/1 to 4/30 in your calculation). Pretend this amount is $10.00.

Step 5 = Your comp segment measure is ((Step 2 / Step 4) – 1) = ((11.00 / 10.00) – 1) = 10%. This means that in April 2016, your merchandise productivity is 10% better than in April 2015.

Step 6 = Repeat Step 1/2/3/4/5 for each month you wish to measure merchandise productivity, sliding the window back a month for March, then back another month for February, and continue back as far as you like.

I like to run these analyses with "numerous dependent variables". Instead of total sales, as outlined above, I will modify Step 2 and Step 4 (not Step 1 and Step 3) for the following:

• Phone Transactions.
• Paid Search.
• Organic Search.
• Affiliates.
• Comparison Shopping Engines.
• Mobile Phones.
• Tablets.
• Social Media.
• Email Marketing.
• Stores.
• Specific Stores (i.e. Bellevue Square).
• Outlets.
• New Items.
• Existing Items.
• Each Product Category.
• Low Priced Items.
• Average Priced Items.
• Expensive Items.
• Items Purchased Via Free Shipping.
• Items Purchased Via Discounts/Promotions.
• Items Purchased Via Liquidations/Clearance.
• Fashion Items.
• Basic Items.

Ok, what questions do you have? About a third of my consulting projects surround the methodology above. 80% of the time, I am able to identify a merchandising issue that is holding the business back, so the methodology works well.

I also like to run the analysis, going back about four years, allowing me to create comp segment metrics for the past three years (on a year-over-year basis). The trends allow me to see when specific issues arise ... it is very common for issues to arise at the start of a new season when a new merchandise assortment is introduced.

Skeptical

That's one of the smart people who works at your company, maybe a #datascientist. She's been reading the entire series about rebuilding the marketing function at a traditional cataloger, and she's skeptical.

It's been an interesting eight months. The thesis I'm asking you to consider has a handful of important components.

1. Merchandise Productivity.
2. New Customer Acquisition.
3. Brand Response Marketing Team / Marketing Department Rebuild.

There tends to be a lag between the content I share with you, your thoughtfulness in considering the content, your ability to implement the content, and the business results that may require you to implement the content. Between each stage, the thesis is met with a healthy dose of skepticism.

My blog is being SWARMED by major retailers (you could easily name these companies) ... these companies are searching for variants of two phrases, in an effort to reverse horrific results.

1. Merchandising Productivity.
2. New Customer Acquisition.

Six months ago, retailers didn't search either term. Desperation turned skeptics into professionals who will at least consider the thesis.

This brings me to you. I've been begging you to evaluate Merchandise Productivity for close to five years. I've stressed the importance of customer acquisition in the past year. And I have been promoting the importance of the Brand Response Marketing Team in the past seven weeks.

You have been uncharacteristically quiet.

Do you agree with the thesis?

Do you disagree with the thesis?

Are you simply skeptical?

Do business results have to get considerably worse (like among our omnichannel friends on the retail side who followed their thesis into a catastrophe) before considering the thesis?

Why not take a moment, and send me a message. What do you like about the thesis? What do you dislike about the thesis? Are you skeptical? Or will you embrace the content? What changes are you making, based on what you have learned? Send me a message (kevinh@minethatdata.com) and offer your thoughts.

Day To Day

What does the person responsible for the marketing rebuild do, on a daily basis?

Sell The Message: Every single day, the leader is asking every single employee (not just marketing employees) what the employee did to acquire a new customer that day. Every day. Say it enough times, and employees will learn to bring examples before you walk into the conference room.

Ask Folks To Prove That Their Tactics Work: When the creative team tries something new, the creative team has to prove that they acquired more customers with their idea than with existing ideas. Obviously, the creative team isn't going to learn how to program in Python, so you're going to have to do the heavy lifting here. Nonetheless, you will hold your creative team and your merchandising team accountable. You have to ... if you don't do it, nobody will do it. Then, craft your efforts around the creative presentations that work best. If you are a cataloger, then the marketer (not creative, not merchandising) is responsible for prospect catalog performance - so use the best creative and put the darn catalog together yourself (the best performing prospect catalogs I've ever seen were literally cut-and-pasted by a marketing expert - seriously - the reason prospect (smaller) catalogs don't work is because marketers do not assemble them). And when your prospect catalog outperforms existing mailings, show everybody why. Put together your own email campaigns. Seriously - you are the marketer, and these are the kind of things that leading marketers do. If office politics prevent you from doing your job, then you had better be all over those who are accountable - show these folks what works and what does not work.

Harp On Merchandise Productivity: Old Navy sales plummeted at the end of 2015. Do you think that's the fault of the marketer? Highly doubtful. Business doesn't meet expectations when customers don't like the merchandise you sell. And the person who takes the fall for merchandising challenges is the marketing guru. Oh, sure, the merchandising leader is eventually going to pay the price, but not before easy solutions (plug-and-play marketers) have been exhausted. You are not a plug-and-play marketer. So fight for your job. Constantly share what merchandise productivity is, by category. Let every employee know the categories that are working, and the categories that are not working. Post a digital television with a merchandising / new customer scoreboard next to the front entryway to your corporate office, so that every employee is forced to look at the numbers. Seriously ... run a stock ticker with +/- percentages for each merchandise category. I know, I know, you don't want to offend anybody. You have to teach every employee why the business is not meeting expectations. If that means that every employee must know that Widgets are running a -8% merchandise comp, then so be it.

Spend Time With Your Brand Response Marketing Team: If you don't, they'll run themselves in a direction you don't want them to go ... or more commonly, they'll just disband.

Reward Incessantly: Constantly point out and reward the behaviors that align with your customer acquisition program. I mean, sure, social media engagement is important, but if engagement does not lead to new customers, then good work that does not align with your program is not rewarded as much as good work that does align with your program. It's a lot like training a dog, folks. Spot bonuses everywhere for the folks who find ways to increase new customers at no/low cost.

Hold Vendors Accountable:  You cannot spend all day holding employees accountable while letting vendors do what they please. Reward the vendors that meaningfully contribute to new customers - pay them spot bonuses too. Hold everybody else accountable for their results. I mean, for crying out loud, all we read about is vendor nonsense, and the garbage you tell me that vendors get away with ... it has to stop. No more small tactics from vendors. Vendor employees ARE YOUR EMPLOYEES too.

You don't get to just sit in your office.

You have to hustle.

All day.

Every day.

Ok, tell me why I am wrong ... use the comments or send me an email message.

Use Merchandise Productivity To Your Advantage

There are two places where terrible business decisions are made while simultaneously allowing many employees to feel good about the decisions:

1. Catalog Pagination and Merchandise Assortment.
2. Home Page / Landing Page Merchandising.

This is one place where your Brand Response Marketing Team can make a huge difference without even trying.

Your Brand Response Marketing Team should analyze every single spread in every single catalog. Why is the item with a 48% return rate and 29% gross margin being featured on page five? Why are crappy items that need to be liquidated populating key online landing pages?

The Brand Response Marketing Team demands that the first 20 pages of every catalog are populated with the best selling items and best creative presentation possible ... period. There is no room for negotiation here. None.

The Brand Response Marketing Team demands that the home page and key landing pages are populated with the best selling items and best creative presentation possible ... period. There is not room for negotiation here, unless the topic is personalization ... there is nothing wrong with personalizing key pages to capitalize on the traffic that lands there.

Simple pagination and landing page / home page merchandising tactics alone generate a 10% sales gain ... personalization tactics frequently generate 15% - 50% conversion rate gains (though the gains are lower on a annual-demand-per-customer basis because visits are cut out of the value chain, increasing conversion rates but not impacting annual spend).

If the Brand Response Marketing Team accomplishes this, and this alone, you will meet your new customer goals and you will grow customer loyalty and your CFO will want to come over and hug the team ... and you haven't even begun to implement your customer acquisition program yet.

The Brand Response Marketing Team owns catalog pagination, email merchandising strategy, and key landing page / home page strategy. Without ownership, change won't happen. And when change happens and is positive, all employees share in the gains earned by the Brand Response Marketing Team.

This is a perfect example of improving Merchandise Productivity without changing the merchandise assortment one bit.

Leinenkugel's!!!!

What do you see behind home plate?

Leinenkugel's!!!!

Now, these folks do not practice the classic omnichannel strategy that the script writers demand of all of us. I happen to like Leinenkugel's Red. Can't get it in the Pacific Northwest. But you can get Summer Shandy. In summer.

And out here, since they don't exactly offer you everything you can get in Chippewa Falls, you don't really know who the heck they are. A visit to their website shows a lot of beverages that are not available everywhere.

Summer Shandy ... it's not something you can buy in November. It's a seasonal brew, and accounts for a significant minority of sales in spite of a short selling season (click here).

So there you go - that's a real whopper of a customer acquisition strategy, don't you think?

• Regional advertising.
• Regional availability.
• Seasonal availability.

You don't have to do what the script writers tell you to do. There's not a pundit on the planet who would tell you that Leinies has a credible omnichannel strategy.

Craft your own customer acquisition strategy. Have a plan, and follow your plan. Mailing co-op names or pay-per-click Google strategies or "leveraging Facebook" are not strategies, they are not a plan. Have a plan.

P.S.:  In other beer related news, Budweiser is rebranding itself as "America" through the election cycle (click here). It's a lot harder to have a customer acquisition plan like Leinenkugel's than to change the name of your beer to "America" for six months. One is a plan, the other is a trick. Both can work.

The Haters Establish Momentum

In any rebuilding process, a third of your co-workers will be against anything you want to do.

And in a Customer Acquisition agenda, the folks who will stall your progress are those who love to "squeeze more out of the lemon". In other words, these folks love loyalty programs.

This spans a large audience, folks. 

You have an employee who sends four emails a week to existing customers. This employee will feel jilted by your focus on new customers.

You have an employee who works with the vendor community to get catalogs pushed to existing customers. This person is going to feel jilted by your focus on new customers. This person is going to feel validated by a vendor community who think you are a complete idiot and think the employee "gets it". Of course the employee "gets it". The employee does things that benefit the vendor more than the brand the employee works for. I see it every day. It's a cancer that runs through our industry.

Your job is to stall hater momentum.

I took over a team at Nordstrom. There were two communities that immediately established momentum against my team ... an information technology team that worked for the credit division (often competing for the same project load because skills were complementary), and a team in the Corporate Finance office. I learned about the latter while walking down the street. I was walking behind the Finance team ... and as it turned out, they were talking about my Business Intelligence Team. A Finance Director looked at his co-workers, and joked that the team didn't know Business, and that the team wasn't Intelligent. Ha ha ha ha ha ha the team laughed as we all stopped at a red light, waiting to cross the street.

The haters had momentum.

I stalled their momentum by leveraging the only momentum I had ... I made sure that my Business Intelligence Team worked on a series of projects for the Chief Financial Officer. While this doesn't change the opinions of mean, gossipy Directors who were stuck in the hot tar of the corporate pyramid, it does help build relationships with those the Directors report to. The goal, of course, is to stall hater momentum. You stop the commentary from going up the pyramid, and in the process of doing so, you end the negative impact of the commentary.

This is your job.

It is your job to stall hater momentum. You won't change minds, and that's ok. But you will stop the cancer from spreading across the organization.

You cannot let the haters build momentum. Your program is in place for a reason ... customer acquisition is the most important growth tool you possess. Your efforts will cause those who hate you to earn larger bonuses, and the haters will mock you even as they put down money on a new home, money you generated for them.

I know, I know, your corporate environment is unique and different. Fine. Then craft a solution that aligns with your organization. At least try to do something different ... right? If if your answer to that question is "wrong", then maybe you are the problem, right?

And In Come The Bad Ideas

You have set your rebuilding process in motion. Even though the Information Technology Officer and the "Chief Customer Officer" think you are crazy for abandoning existing customers (which you have not done), you are in the process of pointing your Executive Team in the right direction.

Your Brand Response Marketing Team have met several times ... this is when the bad ideas come flowing in.

• "What if we did a postcard with 30% off and free shipping? And we rented a list of customers under the age of 40? That solves our Millennial problem and gets us new customers."
• "We would like $25,000,000 to create television ads."
• "Could we double the paid search budget and focus on keywords that align with products we have to liquidate, killing two birds with one stone?"

One way to stop the nonsense is to have your Brand Response Marketing Team analyze the competitive customer acquisition landscape.

In other words, ask your Brand Response Marketing Team to analyze three competitive sets.

1. How your competition acquires new customers.
2. How e-commerce brands acquire new customers.
3. How Silicon Valley brands acquire new customers, especially those that "scale" quickly.

Give the Brand Response Marketing Team one month to perform the research. Have the Brand Response Marketing Team present their findings to your Executive Team and to your Marketing Team. Ask the Brand Response Marketing Team to categorize tactics into themes ... you have offline tactics, online tactics, tactics where you spend a ton of ad dollars, tactics where you don't spend anything. Focus carefully on the tactics where you don't spend anything. There are TONS of tactics that do not require you to spend a single ad dollar. These are the tactics that already capitalize on your existing traffic, which is more than sufficient to grow your business. In your first few years of managing a Brand Response Marketing Team, this is where your home runs are likely to come from ... home runs, of course, because you'll get new customers, you will increase sales, and you will not generate expenses that alienate your Chief Financial Officer.

Pre-empt the bad ideas ... focus your Brand Response Marketing Team on tactics your competition, e-commerce brands, and Silicon Valley brands who "scale" quickly apply to their businesses.  You're going to see consistent themes that point you in the direction you need to move in.