Trick or Treat?

Here's what so many of you tell me is happening:

• Annual New Customers 11/1/2018 - 10/31/2019 = 100,000.
• Annual New Customers 11/1/2019 - 10/31/2020 = 140,000.
• Annual New Customers 11/1/2020 - 10/31/2021 = 128,000.
• Annual New Customers 11/1/2021 - 10/31/2022 = 105,000.

What happens in the next twelve months?

Now, some of the decline to 105,000 new customers is because of the unwinding of the COVID-bump.

Some of the decline to 105,000 new customers is because you raised prices for obvious reasons.

Some of the decline to 105,000 new customers is because it is getting much harder to find new customers.

If you ignore the last point because you firmly believe in the first two points, well, next Halloween you will be in for a nasty trick. You can treat yourself, of course, by developing customer acquisition programs that are not channel-dependent color-by-the-numbers endeavors that please vendors.

Audits / Accountability

Ok, we're going into the way-back time machine. It's 2003. My team (Database Marketing) was supported by our Credit Division. The customer database was built by and maintained by the Credit Division.

I know, I know, you are about to yell at me ... "SILOS". Have at it.

Our Credit Division decided in 2001 that they were going to create an omnichannel view of the customer by integrating all data sources into a master database. That's a big job at a ten billion dollar brand. You cannot get too frustrated with the process.

But in 2003 the database wasn't being updated properly. Heck, you'd come into work on Monday morning and the database wasn't available. It's hard to execute "Database Marketing" without a database.

My team was promised 95% database availability by 9:00am on Monday morning. My team would grumble that the database wasn't available. The Credit Division would tell anybody we grumbled to that the database "was" available. Yeah, they essentially lied.

My team couldn't understand how the Credit Division could get away with lying and with providing poor service?? Yes, my team was justifiably angry.

So we created our own audit process. It wasn't our job, of course, but the Credit Division was failing us. We created a series of audits to demonstrate that the transactions added to the database were accurate. Most importantly, we created our own count of how often the database was available at 9:00am on Monday morning.

Every Monday at 1:00pm we had a meeting with the Credit Division. We started every meeting by sharing our dashboard. There were two key metrics at the top of the dashboard. We printed them in bold, and passed the dashboard out to everybody.

• 9:00am Database Availability:  5 weeks out of 11, 45%.
• Weekly Database Accuracy:  9 weeks out of 11, 82%.
• Promised Database Availability:  95%.

It took about a quarter, 13 weeks, before our Credit Division got sick and tired of seeing the metrics printed in bold and handed out every week.

It took about 26 weeks before our problems were solved.

Turns out nobody, and I mean nobody, likes to be shamed. It's worse when you shame people after they lie.

Audit people, and hold them accountable. Please.

Start Thinking

We've talked about this before, but we're gonna talk about it more in the future.

Let's say you have an item that you sell for $49.99. The cost of goods sold on the item is $19.99. Somebody in your marketing department decides that Thursday is "EVERYTHING IS 30% OFF DAY".

Woo.

Hoo.

So the $49.99 item becomes a $34.99 item.

And instead of generating $30.00 of gross margin, you generate $15.00 of gross margin.

In the customer databases I analyze, I calculate the average price that an item sells at over time. In our example above, most days that item sells for $49.99, but on Thursday it sells for $34.99. Maybe the average price that the item sells at ends up being $47.85.

Now, if the item sells for $49.99, I code the item as selling "at/above" the historical average price point.

If the item sells for $34.99, I code the item as selling "below" the historical average price point.

Turns out there are all sorts of interesting things you can learn when you create this attribute and store it in your customer database.

So start thinking about creating this attribute in your database, ok? We'll talk more about it in the upcoming days.

Subway

Twitter is amazing for a lot of reasons ... you can be a horrible human being and not face any semblance of accountability for completely unacceptable behavior on the platform, or you can post surveys that reveal how people think about marketing topics.

Like this one (click here).

Think about the results, and what it means when professionals really have no idea what is going on.

P.S.:  Attribution here is largely meaningless. Segmentation is largely meaningful.

Measuring Impact of Price Increases

Yeah, I've heard y'all ...

• "We have no choice but to pass cost increases on to our customers. If a $50 item has a $20 cost of goods and now that item costs $27, we have to pass the additional $7 on to the customer. It's that simple."

Well, maybe. But you're going to do what you feel like you have to do, so do it.

But at least you need to know what you are doing to your business as a consequence, right?

A simple analysis looks like this.

• By merchandise category, measure rebuy rates into the category last year, and measure average price per item purchased within the category last year.
• By merchandise category, measure rebuy rates into the category this year, and measure average price per item purchased within the category this year.
• Fit a line through the relationship. In other words, plot price change (TY vs. LY) on the x-axis, plot rebuy rate change (TY vs. LY) on the y-axis.

The relationship should look like this:

You easily see two trends.

• Rebuy rates are down about 4% independent of price changes (it's where the orange line crosses the 0.00 vertical line on the x-axis).
• A 10% increase in prices yields a 4% decrease in rebuy rates.

This is something that all of you can do ... the analysis is easy and can be finished within an hour, and you'll have two important answers to the impact of pricing on your business.

If you don't have the resources to do this, contact me (kevinh@minethatdata.com) and I'll perform the analysis for you.

A Few Trends

If I index rolling-twelve-month demand, using September 2019 as a base, this is kind of what I'm seeing.

At Month = 7 (March 2020), sales begin to accelerate ... growing about 30% within a year. From there, sales stagnate, and by Q4/2021 sales begin to slump.

We're now in the slumping phase.

Worse, sales look like that ... but customer counts are awful. Here's something I commonly observe.

• Sales vs. September 2019 = +23%.
• Prices vs. September 2019 = +30%.
• Total Customers vs. September 2019 = -7%.
• New/Reactivated Customers vs. September 2019 = - 15%.

It wasn't an awful thing to trade customers for higher prices in 2021 because there were a glut of customers from the COVID-bump.

It's become an awful thing to trade customers for higher prices in 2022 because there is no longer a glut of customers from the COVID-bump. We're consciously trading new/reactivated customers off for sales gains via higher prices (and I get it ... your cost of goods went up so you feel like you have no choice). We're consciously trading rebuy rates for sales gains via higher prices.

What happens in 2023?

You're already struggling to acquire customers. That continues. You'll continue to feel inflationary pressure, so you'll likely continue to increase prices. This will cause you to continue to lose customers. The more customers you lose in 2022/2023, the harder it will be to be successful in 2024 and beyond.

You will have to find a way to appeal to prospects, even with higher prices. This will take real marketing chops, not the color-by-numbers channel-based conversion-rate ROAS fluff you've learned to analyze via Google Analytics. Real. Marketing. Chops.

It's time to truly test your skills.

 

Discounts and Promotions

Here's one of my favorite quotes ... yes, I like things that I say.

• "Discounts and Promotions are taxes placed upon brands for being unremarkable." 

People are about to start yelling at me, and for good reason. Too many readers think that running a business is all about identifying discounts and promotions that "tickle the buying bone of today's ever-changing consumer" or whatever word-salad the vendors craft in defense of discounts and promotions.

Nobody tosses out discounts/promotions unless business is not meeting expectations. It was fascinating to see all of the full-price shopping that happened during the pandemic when customers wanted/needed what you were selling. You didn't need to promote anything, because customers wanted/needed what you sold.

Think of it this way. You have an item that sells for $50, with a cost of goods sold of $20. Every time you sell an item, you generate $30 of gross margin. Nice job!

But then either business doesn't meet expectations or the marketer grows an ego to the point where "something" has to be done from a marketing standpoint or the inventory team bought too many widgets or the "competition" priced the item lower. Whatever the reason, somebody decides that it is time to sell the item at 30% off.

• $50 * 0.70 = $35.
• Cost of Goods Sold = $20.
• Gross Margin Dollars = $15.

In order for this item to be equally profitable, you now have to sell two items whereas you used to only need to sell one item.

That $15 is the tax you pay for being unremarkable. It's punitive. The tax consumes half ... half ... of your profit.

This is the point in the argument where some of you yell at me about the fact that you are always running promotions so my argument is useless, you'll never sell at full price, you view Macy's as an example of a well-run business and I'm the problem, not you. That argument is also problematic. 

Back in the stone ages at Eddie Bauer, I distinctly recall our CEO yelling at a room of marketers to "do something". He complained that we had promotions in 33 of 52 weeks of the year, and he didn't want the calendar "polluted" with discounts (hint - it was already fully polluted ... like squirting fruit punch Miio into a glass of water). We were already running too many discounts/promotions, we were the problem. End of story. If we stopped running promotions, sales decreased (though via our testing profit increased ... and nobody liked that reality). If we didn't add discount/promotions, the top-line didn't grow. We were trapped by the very strategy we employed years earlier. We were done.

There are clever ways to implement discounts and promotions. 30% off of everything is NOT clever. 40% off of a key product this week only (while not discounting anything else) "could" work.

Let's not be lazy. Be a marketer. Be clever. Be creative.