Customer Spend

Let's take some time this week to compare and contrast how the sports industry monetizes their audience, and how we in e-commerce / retail monetize our audience.

If you purchase season tickets to see the Seattle Mariners, you may well earn a discount ... but you are also encouraged via the discount to purchase more expensive seats, which really isn't a discount because you're watching the same game everybody else is watching.

Sports teams get your money in advance. You may or may not (look behind home plate at a Yankees game sometime) attend the game, but you paid for your ticket ... usually an above-average cost ticket.

In e-commerce and retail, we tend to do the opposite, don't we? It's late September and we throw a discount/promotion at our best customers (#crm), hoping the customer will spend more. In fact, most of the best practices in the industry involve getting a best customer to purchase again via discount/promotion. Then we throw a loyalty program on top of the existing incentive structure, paying the customer points that are used to cause the customer to spend even less in the future.

Amazon, of course, acts more like a sports team. They get you to pre-pay for shipping on an annual basis.

If we want to win in the future, we're going to have to treat our businesses more like a sports franchise. There will have to be events that the customer has to participate in, events that cause the customer to spend more. We currently do the opposite - we practically beg the customer to spend less, and we dilute events by running promotions nearly every week.

An September Attribution Conversation With Catalog Craig Paperman

Yes, this is considered "Business Fiction" ... if this isn't your cup of tea, then why not read about these 8 easy tips to make your retail business perform better (hint - they're easy to implement and they won't make much of a difference - unless you think that having employees park cars in front of the store causes folks to think the store is performing well - and make sure to read the response to a commenter who asks an honest question about how to fix his retail business).

Kevin: Craig, you look crabby today.

Craig: You always think I look crabby. Idiot.

Kevin: Why do think I am an idiot?

Craig: Never mind.

Kevin: No, if you are going to take pot shots at me, at least have the courtesy to man-up and share why you think I am an idiot.

Craig: You are an attribution idiot.

Kevin: That's why you think I am an idiot?

Craig: Among other things.

Kevin: What don't you like about my point of view on attribution?

Craig: I'll tell you what I don't like.

Kevin: Get on with it!

Craig: Fine. You have no idea how to attribute orders to customers. No idea at all.

Kevin: Do you have a clear picture on what you need to do, from an attribution standpoint?

Craig: If we don't send catalogs, nothing else happens. The catalog is the catalyst for the whole process.

Kevin: I disagree with you.

Craig: That's why you are an idiot.

Kevin: I just got off the phone with an e-commerce startup. They told me that Instagram is the catalyst for their whole process. Their creative team generates beautiful imagery that customers cannot help but share, creating a whole bunch of free marketing for their brand. You don't need a catalog to make magic happen.

Craig: And my catalog is full of beautiful imagery that customers cannot help but purchase from.

Kevin: Do you see the problem?

Craig: Do you?

Kevin: The problem is that you have to pay a ton of third parties for the right to get your images in the mail. The online brand doesn't have to do that. And then you spend all of your time trying to parse orders across vendors. Maybe you should focus your efforts on having a robust customer acquisition program.

Craig: That's why attribution is so important. We have to prove that our investment works.

Kevin: Think about what you are saying.

Craig: Oh, I've thought about it. I can't stop thinking about it.

Kevin: In order to put that catalog in the mail, who do you have to pay?

Craig: An awful lot of people!

Kevin: Paper reps. Your printer. The USPS. Your merge/purge provider. Your co-op - heck, four or more co-ops.

Craig: Because I spend so much money, I need to prove that there is a return on investment.

Kevin: Who is telling you that you need to prove there is a return on investment?

Craig: Who?

Kevin: Is your staff telling you to prove there is a return on investment?

Craig: No.

Kevin: Then who? Who is telling you to prove that there is a return on investment?

Craig: Our co-op rep said that attribution is really important.

Kevin: Why would your co-op rep tell you that?

Craig: Because she's trying to help us. She gives us a lot of free tips. She told us that #engagement is really important, too. She sent me a link to a blog post called "Six Reasons Why Engagement Is A Game Changer."

Kevin: She wants to help you so that she can "prove" that catalog marketing works. You know why?

Craig: No.

Kevin: Because if she "proves" that catalog marketing works, she gets paid.

Craig: By who?

Kevin: By you!!

Craig: Oh.

Kevin: Have you ever noticed that the loudest voices in the attribution discussion are the voices that you have to pay to get catalogs put in the mail?

Craig: Um.

Kevin: What do your attribution "partners" tell you to do when a customer receives a catalog and then comes to your site via paid search and then purchases via a discount in an email campaign?

Craig: Well, you match the customer back to the catalog, and if the customer was mailed a catalog, you give the catalog credit.

Kevin: Why does the catalog get credit?

Craig: Because the catalog inspired the order. How else did the customer get to the website?

Kevin: But how do you know the catalog inspired the order?

Craig: Because the catalog came first!

Kevin: In my example, email was part of the purchase process, right?

Craig: Yes.

Kevin: So who is to say that email didn't initiate the process?

Craig: Nah, email is a pointless distraction compared to "the catalog".

Kevin: And how do you know the customer wasn't searching for products for months?

Craig: Because Google Analytics makes it really hard for me to observe that kind of behavior.

Kevin: So you make assumptions because a third-party provider makes it hard for you to measure the whole chain of events leading up to a purchase?

Craig: Google Analytics is free.

Kevin: Maybe you should pay them, or pay Adobe so that you have a more complete view of customer behavior.

Craig: See, this is why you are an idiot.

Kevin: I'm an idiot because you want to prove that the catalog works because your vendors want catalogs to work so that vendors continue to get paid by you?

Craig: You are an idiot because you don't look at the business the way you are supposed to look at the business.

Kevin: How am I supposed to look at the business?

Craig: You are supposed to mail a catalog. The catalog creates a whole stream of #engagement, which I am more than happy to pay for. Then, the customer orders online. Finally, we apply #datascience to parse orders across the marketing channels that contributed to the order, with the catalog getting most of the credit because the catalog kick-started the process. Then all of our vendors get paid, and we hope to make profit in the process. The entire industry is happy. That's how you are supposed to look at the business.

Kevin: And who told you to look at the business that way?

Craig: Nobody. That's the way it is supposed to be.

Kevin: You listened to those with a megaphone. Who holds the megaphone?

Craig: Again, you are an idiot.

Kevin: The vendors you pay hold the megaphone. They pay trade journalists to get their message to you. Their sales reps tell you what to do. The vendors sponsor all of the major conferences, and their sponsorship dollars allow them to use a megaphone to tell you what to do.

Craig: My vendor partners wouldn't lead me astray.

Kevin: How old is your customer?

Craig: We just had a 32 year old purchase from us! Our database provider overlayed demographic and social data to demonstrate that we have younger customers. Our database provider wants to prove we have younger customers who might be willing to capitalize on their retargeting product.

Kevin: How old is your average customer?

Craig: Sixty-three years old.

Kevin: That's what happens when you look at the business the way you are supposed to look at the business.

Craig: Here we go with the age nonsense and catalogs mailings again.

Kevin: Craig, you aren't even trying.

Craig: Of course I'm trying!

Kevin: You want to know how to solve the attribution riddle. But the riddle you are trying to solve is biased because you want the catalog to get most of the credit. The outcome of your approach to attribution is an aging customer base that is disconnected from modern commerce. And anytime I point this out to you, you call me an idiot.

Craig: You are an idiot because you aren't doing things the way you are supposed to do them.

Kevin: But by doing things the way you are supposed to do them, your vendors are being paid but your business is struggling.

Craig: So help me solve the problem, but help me solve it by doing things the way we are supposed to do them!

Kevin: Let me ask you a question.

Craig: Oh Christ, here we go.

Kevin: Have you ever gone to a restaurant and enjoyed really good soup?

Craig: Why would I eat soup at a restaurant?

Kevin: #OhBoy.

Craig: I mean, if you are going to go to a restaurant, why not enjoy a Prime Rib? I'm thinking thirty free range ounces of heavily salted and peppered medium-rare perfection, with au jus and creamy horseradish sauce and roasted vegetables. Doesn't that sound good?

Kevin: Make sure your co-op rep takes you out to dinner.

Craig: That's what you eat at a restaurant. Prime. Rib.

Kevin: Which portion of the meal that you described do you attribute the success of the meal to?

Craig: What?

Kevin: Do you enjoy the Prime Rib meal because of the roasted vegetables? The salt? Creamy Horseradish?

Craig: It's the whole thing. It's how it all fits together. It's perfect! And the service. I like it when Wanda serves our table. Wanda is funny. She tells great stories.

Kevin: I'll bet Wanda works for tips.

Craig: You can't separate anything from the experience. It all fits together, resulting in a great meal.

Kevin: So you don't attribute 60% of the success of the meal to free range beef, and 15% to Wanda, and 10% to the vegetables, and 10% to salt-and-pepper, and 5% to creamy horseradish and au jus?

Craig: Who would ever do that? An idiot, probably.

Kevin: Don't you want to be able to attribute the success of the meal properly? You made a $49 investment in the meal, don't you want to know why your investment worked or didn't work?

Craig: No, I just want a great experience.

Kevin: They why not approach your customer acquisition activities the same way? Why not create a great experience via a combination of marketing and merchandising and customer service and creative? Then evaluate the whole package. Is the whole package working, or is the whole package not working? Use your customer acquisition ad-to-sales ratio to measure overall effectiveness. Test mailing catalogs or not mailing catalogs. Test increasing the paid search budget or reducing the paid search budget, and see what happens to new customer counts. Try managing a true customer acquisition program, and measure the overall effectiveness of your program.

Craig: I don't want to do that. I want to do things the way you are supposed to do them. Now please tell me how to attribute orders to the catalog, so that I can #optimize my catalog investment.

Kevin: #OhBoy. 

Opposing Metrics

This one comes up all the time.

Let me give you an example. A company increases marketing spend - significantly. This is where things get interesting.

Last Month (Ad Cost = $2,000,000):

• Catalog Marketing = $5,000,000.
• Paid Search = $1,000,000.
• Facebook = $500,000.
• Email = $1,000,000.
• Other Online Marketing = $1,000,000.
• Non-Attributed Online Sales = $4,000,000.
• Total Volume = $12,500,000.

This Month (Ad Cost = 30% More ... $2,600,000).

• Catalog Marketing = $6,000,000.
• Paid Search = $1,200,000.
• Facebook = $600,000.
• Email = $1,200,000.
• Other Online Marketing = $1,200,000.
• Non-Attributed Online Sales = $3,000,000.
• Total Volume = $13,200,000.

Your CFO wants you fired. She put together her own math.

• You Spent $600,000 Incremental Ad Dollars.
• You Generated $700,000 Incremental Demand.
• You Lost $320,000.

You analyzed the gain in demand by marketing channel.

• You Spent $600,000 Incremental Ad Dollars.
• Marketing Channels Increased By $1,700,000.
• You Generated $80,000 Profit.

Who is right? The CFO? Or you, the Marketer?

90% of the reading audience will side with the Marketer.

The profit and loss statement, however, cannot be avoided. There's a demand gain of $700,000 and an ad cost gain of $600,000 yielding a loss of $280,000.

The CFO is right.

The Marketer is wrong for the simple reason that the attribution algorithm being used by the marketer mis-attributed online sales to advertising vehicles.

Attribution algorithms are always wrong. Every single one. Wrong.

The profit and loss statement, unless your Finance Team is doing something illegal, cannot lie.

The best Marketers work closely with the Finance Team. The best Marketers pay close attention to the movement of the ad-to-sales ratio. Oh, I get it, this is a metric that became popular in the 1980s ... meanwhile, your favorite attribution vendor says they are using the latest and greatest machine learning algorithms to slice and dice customer intent. The latter sounds sexy. The former is 100% accurate.

Non-Attributed Online Sales happen because customers love your brand ... because they WANT to buy from you. No credible Marketer takes credit for orders that are generated by love of the brand.

The best Marketing professionals know how to deal with opposing metrics. The best Marketers always side with the profit and loss statement.

Thoughts? (kevinh@minethatdata.com)

Which Lifetime Value Scenario Should You Pursue?

Here's the lifetime value information from yesterday:

• Google / Paid Search: On average, you make $5.00 profit acquiring a customer via paid search, and you generate $12.00 of profit in year one and you generate $27.00 of lifetime value.
• Facebook:  On average, you lose $10.00 acquiring a customer via Facebook, and you generate $8.00 of profit in year one and you generate $20.00 of lifetime value.
• Offline Advertising: On average, you lose $15.00 acquiring the customer via Offline Advertising, but you generate $20.00 of profit in year one and you generate $50.00 of lifetime value.

Remember, our issue isn't having too few / too many metrics. Our issue is knowing what to do with the information available to us.

The Google / Paid Search scenario is easy. You make money acquiring the customer, you make money in year one, and you generate a healthy amount of lifetime value. In this case, you test your way into spending more on paid search - and you find out just how deep you can go down the paid search rabbit hole, right? (testing, of course, in tandem with natural search, so that you know how much paid cannibalizes natural search ... right?)

The Facebook scenario is deliciously entertaining. You lose money acquiring the customer, you generate profit in year one but not enough profit to offset what you lose acquiring the customer. In other words, after one year, Facebook customers are still unprofitable. Do you continue to pursue this source of acquisition? How did you answer?

I know how I would answer. I'd pull out my five year business investment simulation, and I'd tally corporate profit over five years with and without Facebook names. You run five year business investment simulations, right? Right? If your company has an annual retention rate of between 30% and 45%, then you need to be paid back within 12-18 months in order for the company to optimize long-term profit. That's what I see in the simulations I run. This is where you have to present scenarios to your CFO. You show your CFO what the business looks like five years from now with Facebook names and without Facebook names, and you let your CFO pick the path that aligns with Finance goals. If the business must grow top-line sales and profit isn't all that important, then you'll invest in names from Facebook. If profit is important, you'll avoid these names. But your five year business investment simulation will give you the answer you are looking for.

Look at your Offline Advertising names. You take a bath acquiring the customer, but the customers you acquire become the best customers you'll acquire. Again, this is where you have to have a five year business investment simulation. Why? Because you need to show the CFO that in the short-term, your business results will look bad, but in the long-term, you'll have a very healthy business.

Does this make sense to you?

The issue isn't whether lifetime value (LTV) is a key performance indicator you must track or not. The issue is what you do with the metric. You need a five year business investment simulation to make sense of LTV, and you need to have a good working relationship with your CFO so that you can make decisions that align with corporate goals.

What questions do you have?

Metrics Metrics METRICS!!!

2016 has been interesting for many reasons.

Here's a quote that keeps coming up.

• "Can you please tell me the three or four KPIs that, if I track them, will help me grow my business?"

"KPI's" of course are "Key Performance Indicators".

Too many of us have been convinced that if we knew a handful of facts about customer behavior, then we could mysteriously change the trajectory of our business.

If that were true, then why can't IBM's Watson figure out metrics that help IBM reverse a four year sales decline? I mean, they have the best metrics machine on the planet ... and so what, right?

Metrics are not the issue.

Business knowledge is the issue.

We don't want to admit that we don't know what to do.

So let's try a little experiment.

Here's your quiz for tomorrow.

Let's say that there are three primary sources of new customers.

• Google / Paid Search: On average, you make $5.00 profit acquiring a customer via paid search, and you generate $12.00 of profit in year one and you generate $27.00 of lifetime value.
• Facebook:  On average, you lose $10.00 acquiring a customer via Facebook, and you generate $8.00 of profit in year one and you generate $20.00 of lifetime value.
• Offline Advertising: On average, you lose $15.00 acquiring the customer via Offline Advertising, but you generate $20.00 of profit in year one and you generate $50.00 of lifetime value.

Well, you want metrics that matter - and there isn't a more important metric than lifetime value. Tell me what you, the strategic marketer/analyst, do with this information? And don't tell me you need more information!!!! Your CFO is staring at you. What do you tell her?

We will answer this question tomorrow.

Self-Driving Cars & Retail & Sports

Read this, my friends ... it'll only take you 30 seconds (or less ... click here).

Let's compare and contrast business models. When you go to a Milwaukee Brewers baseball game, what happens?

• You pay the Brewers for the right to park in their parking lot.

In this version of the future, what is the author recommending for retail?

• Retail pays you for the right to visit their store.

Can you see what is going on? One set of brands gets you to pay to visit their arena ... your brand (in theory) is going to pay the customer to visit your store. My goodness. Why do we celebrate a future where retailers constantly have to foot the bill for vendors?

Retail has to become MORE like sports in order to survive.

In other words, what good is the retail industry if it is simply a tool for monetizing a driverless car industry funded by wealthy tech gurus?

We already know the answer to that question, don't we? We've spent a decade "digitizing" retail, because wealthy tech folks told us that's what the future of retail is ... and now that we're in the future, we've learned that digitizing retail means less traffic in stores. So with less traffic in stores, the digital elite want driverless cars that retailers pay customers to ride in to visit stores.

At some point, the retail industry will stop listening to gurus ... and will instead figure out how to make retail more like sports, where customers open the wallet to soothe their emotional needs. Without this transformation, smart digital gurus will continue to take advantage of average retail minds.

Losing

In sports, it is really clear who is winning, and who is losing.

Within games, you look at the scoreboard. Oh, look, the Mariners are losing 14-1 to the Rangers. That's not good.

Then you look at the standings (baseball, basketball, football, hockey) ... in soccer, you look at the table. Those who win the most are on top, those who lose the most are on the bottom. It's easy to see who is experiencing success.

If you want to advance your career, you probably have to do two things.

1. You probably have to go work for a company that is losing.
2. You probably have to fix that company, and help that company win (in an ethical manner, of course).

At least that's the way it happened to me ... I had to go from a winning company to a losing company ... had to fix my area ... then went from fixing a problem to going to a company that defined losing (Nordstrom.com), and had to play my part in fixing that problem.

Oh, sure, there's a club of folks who earn well-deserved upgrades ... going from Target to Uber or something like that. But far more often, a company that is losing games by the score of 14-1 is the company that comes calling. That's where your chops are tested.

Traditional Retail and Classic Catalogers are losing, for the most part. There are exceptions as always. But you look at the standings, and these companies are not winning. This means that there are Professional opportunities for you to go into these companies and FIX THEM!

A retail brand (in particular) is going to be run much more like a sports team in the future. The in-store experience is going to be more like a sports schedule ... with numerous events and opportunities to buy tickets to big events in-stores and experiences and thrills and all that kind of stuff. Wouldn't you want to be one of the people who fix the problem? Isn't that more fun than being an #omnichannel drone that the vendor community counts on to get paid?

There are going to be a TON of opportunities to fix retail and to fix cataloging in the next five years. Are you ready to implement your program, your way of doing things? Are you ready to see if your ideas can be implemented? Are you ready to see if you can lead people?

Or are you going to point at the scoreboard and mock those that are losing 14-1, or worse, just roll out the #omnichannel vendor playbook at their benefit?