The Brand Ecosystem - An Image

We're going to spend a little bit of time talking about images like this image.

This image is what I call the "Brand Ecosystem". The image shows how different aspects of an order all relate to each other.

Points that are close to each other in the ecosystem are points that commonly appear together in an order.

Tomorrow - I will talk about the data points.

Today - I will share the geeky methodology I use - if you don't like math, stop here, and join me tomorrow.

Dataset:  1 Row Per Order, Past Twelve Months.

Variables In The Dataset:

• Household_ID.
• Life-To-Date Order. If the customer placed the 3rd and 4th orders in her lifetime, then there are two rows for this customer ... one with a life-to-date-order value of three, one with a life-to-date-order value of four.
• 1/0 Indicator:  Is this the first order ever for this customer (1 = yes, 0 = no)?
• 1/0 Indicator:  Is this the second order for this customer?
• 1/0 Indicator:  Is this the 3rd-5th order for this customer?
• 1/0 Indicator:  Is this the 6th-10th order for this customer?
• 1/0 Indicator:  Is this the 11th-25th order for this customer?
• 1/0 Indicator:  Is this the 26th+ order for this customer?
• 1/0 Indicator:  Is this order tied to a discount/promotion?
• 1/0 Indicator:  Did this order have a single item (0) or multiple items (1)?
• 1/0 Indicator:  Was the average price of items purchased in the lower third?
• 1/0 Indicator:  Was the average price of items purchased in the middle third?
• 1/0 Indicator:  Was the average price of items purchased in the most expensive third?
• 1/0 Indicator:  Affiliate Channel.
• 1/0 Indicator:  Flash Sales Channel.
• 1/0 Indicator:  Subscription Channel.
• 1/0 Indicator:  Cost per Click Channel.
• 1/0 Indicator:  Email Channel.
• 1/0 Indicator:  Housefile Catalog Channel.
• 1/0 Indicator:  Sales Rep Channel.
• 1/0 Indicator:  Prospect Catalog Channel.
• 1/0 Indicator:  Search Channel.
• 1/0 Indicator:  Print Ads Channel.
• % of Demand from Product Category 01.
• % of Demand from Product Category 02.
• % of Demand from Product Category 03.
• % of Demand from Product Category 04.
• % of Demand from Product Category 05.
• % of Demand from Product Category 06.
• % of Demand from Product Category 07.
• % of Demand from Product Category 08.
• % of Demand from Product Category 09.
• % of Demand from Product Category 10.

Place each variable into a Factor Analysis / Principal Components Analysis in your preferred software package.

Use a Varimax Rotation.

Plot the coefficients from the Rotated Component Matrix on an x/y grid.

It's that simple!

Now go try the methodology on your business, and plot your brand ecosystem.

Two Brands Within One Ecosystem In A Catalog Holding Company

Take a look at this situation.

Brand #1:

• LY Customers = 1,000,000.
• Repurchase Rate = 40% ... Retained Buyers = 1,000,000 * 0.40 = 400,000.
• New Buyers = 500,000.
• Crossover Buyers From Brand #2 = 200,000.
• NY Customers = 400,000 + 500,000 + 200,000 = 1,100,000.

Brand #2:

• LY Customers = 700,000.
• Repurchase Rate = 40% ... Retained Buyers = 700,000 * 0.40 = 280,000.
• New Buyers = 300,000.
• Crossover Buyers From Brand #1 = 100,000.
• NY Customers = 280,000 + 300,000 + 100,000 = 680,000.

Clearly, Brand #1 is growing.

Clearly, Brand #2 is shrinking.

200,000 of 700,000 (28%) of Brand #2 buyers switched to Brand #1.

100,000 of 1,000,000 (10%) of Brand #1 buyers switched to Brand #2.

Within catalog holding companies, this is a common theme. There is always a dominant brand, and there is always a brand that plays second-fiddle to the dominant brand.

So the question for those who manage Brand #2 is this:

• How do we grow Brand #2?

The answer is almost always customer acquisition improvements. Brand #2 becomes a feeder system for Brand #1. Success in Brand #2 is not measured via sales, but instead, via the ability of Brand #2 to help Brand #1 grow in the future.

Of course, nobody wants to hear this kind of news. "We've got to fix the merchandising issues." "We've got to get customers from Brand #1 to switch to Brand #2." These solutions seldom, if ever work. Once one brand establishes itself as the dominant brand, other brands exist to serve the dominant brand. And when the less effective brand is finally shut down, as almost always happens, Brand #1 suffers as well.

Within brand ecosystems, it is critically important to understand the role each brand plays. There's going to be a dominant brand. There are going to be brands that struggle to grow. If you can demonstrate that new customers in Brand #2 become loyal Brand #1 customers, then leverage this relationship to your advantage.

Last Chance To Get In On This Run Of The MineThatData Elite Program

We're in the final hours to join this run of the MineThatData Elite Program ... $2,500 buys you a comp segment analysis of your housefile, illustrating merchandise productivity ... a new + reactivated comp segment analysis, telling us how well your customer acquisition plan is performing ... and the weighted averages of all members blended together.

Contact me right now (kevinh@minethatdata.com) to get in on the fun!

Five Days To Go

Five days left to enter the third run of The MineThatData Elite Program!

Contact me now (kevinh@minethatdata.com) and get yourself included in this run of the program (click here for additional details from the original announcement).

Key Dates:

1. Payment Must Be Received By June 15, 2016.
2. Data Must Be Received By June 21, 2016.
3. Three Years Of Customer Data At An Order Level ... June 1, 2013 to May 31, 2016.
4. You Will Receive Your Personalized Write-Up By June 30, 2016.

Your Brand Ecosystem

We are rapidly approaching the eleventh Memorial Day Weekend I have written to you. The eleventh. When I started this, I was on the downswing of "blogging" ... this thing called Facebook was about to take off ... Twitter was in the early days as well ... eventually, 140 character shots across the bow would become more important than thoughtful consideration of a topic. We couldn't imagine a future where a Presidential Candidate would earn stripes and votes by tweeting images of spouses and by tweeting constant put-downs.

As we work through the summer, we're going to evolve beyond a discussion of customer acquisition, to a discussion of your brand ecosystem. Let me give you an example. Up here in the Pacific Northwest, if you stand along the ocean, north of Seattle, you don't hear many sea gulls. Ten years ago, there were sea gulls everywhere. Now why is that? Well, this spring it is because there are no herring to be found. What happens when there are no herring to be found? Salmon don't have much to eat. What happens when salmon don't have much to eat? Salmon have to go find food. What happens when salmon have to find food? The orca whales follow them. Hence, there aren't a lot of orca whales in the waters north of Seattle right now ... two of the three pods aren't making many appearances and only portions of J-Pod are commonly seen.

That's an ecosystem, folks ... sea gulls and salmon depend on herring ... orcas depend on salmon.

In our modern world of marketing, we are orcas. We're looking for salmon. There aren't a lot of salmon ... so we try to entice the existing salmon to side with us, via discounts and promotions. We ignore the ecosystem, we just try to optimize our fraction of the ecosystem.

Now, if we solved the herring problem, we might solve the salmon problem (or if we tore down the dams on the Columbia River, Snake River, and Fraser River, we'd also solve the salmon problem). And if we solved the salmon problem, we'd see orcas, healthy orcas.

Your brand has an ecosystem, and when you nourish your ecosystem, your brand thrives. New customers are like herring. Merchandise is like salmon. Channels are like sea gulls. If everything is managed properly, then you - the orca whale - you have a full tummy (profit). 

Why not join me as we explore brand ecosystems this summer? Let's learn how our customers, merchandise, and channels all fit together. After exploring the topic, maybe we'll be in a better position to launch credible customer acquisition plans.

Problems With Reactivated Buyers

There's a lot of nonsense out there about reactivating inactive buyers ... discounts ... promotions ... digital to print strategies ... artificial intelligence ... blah blah blah blah blah.

These are things that make vendors money. And they'll make you money, too, so I'm not saying you shouldn't use these tactics.

I am saying you need something that moves the needle in your brand ecosystem.

Look at the column featuring the New Customer Acquisition Problem. This brand had 100,000 twelve-month buyers last year, and has a new + reactivated buyer problem, resulting in a drop in the twelve-month buyer file ... from 100,000 customers to 94,000 customers.

Ok, now you're going to partner with your favorite vendor ... and your favorite vendor promises to improve reactivated buyer counts by a whopping 10% ... TEN PERCENT!! First, if the vendor is able to accomplish that, go hug your sales rep, because that's fantastic performance.

Now that you are finished with your hug - let's run the numbers for the brand with the new customer acquisition problem.

• 7,000 reactivated buyers * 10% improvement = 700 additional twelve-month buyers.

So instead of ending the year with 94,000 twelve-month buyers ... your vendor clearly performed well and you're all hugging each other ... and you end up with 94,700 twelve-month buyers.

You haven't solved your problem.

In fact, you barely moved the needle on your problem.

You're gonna be fired for this ... but your vendor got paid.

Our industry is stuck in this type of thinking. We celebrate the smallest of victories. We don't bother to focus on the bigger game, do we?

Your brand ecosystem is highly dependent upon customer acquisition. You need big numbers to move your business into the future ... you need 17,000 additional customers, not 700.

Let's get busy finding ways to find 17,000 additional customers.

Under Pressure

I fielded a call a few weeks ago ... very interesting. Here's what the caller said:

1. Big Companies (> 1 billion) are moving everything in-house. Integrated database with unlimited targeting opportunities. Teams of Data Scientists. Automated decisions that few outside of the data scientist team understand.
2. Small Companies (< 50 million) are fully dependent upon numerous vendor solutions. Nothing is integrated. Few analysts. Many questions. No answers.

The caller asked me about his observations. The observations are reasonable.

But both organizations ... the huge ones and the small ones, are under pressure via a common thread.

Almost nobody is studying ecosystems.

We have data scientists figuring out how to target the right ad to the right customer at the right time. No doubt that, for a large company, there are tens of millions of dollars of profit opportunity to be had - so yes, dig in and get busy.

Smaller companies are pulled where the vendor community wants to pull them. Be it using clickstream data to integrate print strategies or segmenting email lists to identify discount-centric buyers, the vendors pull small businesses in directions that make vendors money. And yes, their clients will make more profit - so this isn't a bad thing.

But it's not optimal.

The understanding of the ecosystem - that's missing, isn't it? What does it "mean" when a lapsed buyer appears on your website? Shouldn't we figure out what a behavior means before we "target" the visitor with a digital ad or throw a catalog in the mail?

If I asked you what role paid search plays in your customer ecosystem, could you tell me in two sentences or less?

If I asked you how personalization impacts the five-year trajectory of your housefile, could you tell me in two sentences or less?

If I asked you if "content" plays any role in any ecosystem, could you answer the question accurately?

If I asked you which source of new customers is most likely to buy from multiple categories in the next two years, could you tell me?

Increasingly, when I speak with you, I sense that you are under pressure. You simply haven't been given the tools to understand what I'd call your "brand ecosystem". So you perform random tactics and then wonder why your business never grows.

If you were able to deliver the perfect ad to the perfect customer at the perfect time, other than increased profit, what has been accomplished, and how have you changed your brand ecosystem?

The caller asked me what I call my hypothesis? I didn't have a name.

But the name, quite honestly, is "Brand Ecosystem". We simply don't understand how our brand ecosystem works, do we?

And until we understand how our brand ecosystem works, we're under constant pressure ... we're constantly pushing buttons and hoping for the best.