A Plethora of Options

Here is updated pricing on new projects for 2023 (click here):

A few notes:

• The "QuickScores" project can be expanded to model customers who are likely to return too much merchandise and therefore should not be emailed. I've been associated with situations where company profit is increased by 10% by not marketing to high returns customers. You're probably already doing this ... but if you aren't already doing this, contact me right now (kevinh@minethatdata.com).
• Customer Development + Category Development ... work on both projects at the same time and you save 25%. That's a deal.
• For $29,000 I will create catalog scores that tell you how many times to mail customers on an annual basis. Show me how many vendors will do this for this low cost? If you are looking to reduce catalog marketing expense (and how many catalogers are looking to accomplish this ... a lot!), contact me right now.
• If you are looking to forecast where your brand is headed in 2023, check out the forecasting section of the link above.

P.S.: I currently have one (1) open slot for March ... I typically work on two large projects per month and just had an opening created. Take advantage of the opportunity before it disappears!

P.P.S.:  If you are a startup with < $10,000,000 in annual sales, you qualify for my $5,000 startup fee.

Newness Matters

You probably already know the percentage of sales of items by category that are new in the past year. The table looks something like this (here, I had 5 years of purchase history so the 4th-5th year is not applicable).

Here we see a brand in disarray. Look at Category 2 ... somebody decided that newness was important last year. Look at Category 4 ... somebody decided there was too much newness and scaled back. Look at Category 8 ... pure chaos, nobody knows what the "right" answer is. Look at Category 12 ... the category is being slowly starved of new items over time.

This is one of those situations where you don't have a strong Chief Merchandising Officer.

You can tell when there is a strong Chief Merchandising Officer, because the differences by category are much more consistent than what is illustrated above.

Now, you don't necessarily need a strong Chief Merchandising Officer. Or, the measure of "strength" is wrong ... a quality CMO might let his/her underlings make independent decisions (if that is the right thing to do). But you have to know what is right for your brand, and then guide your merchandising team toward the right path.

Developing Categories via Discounts

Back to the brand we were studying. Look at the percentage of sales generated below the historical average price point by Category:

Look at Category 2. As a marketer, I'd have a discussion with the head of this Category. Why is this person discounting everything? And if the marketer is the one discounting this category, then the merchant needs to have an honest discussion with the marketer ... "why are you destroying the integrity of my category?"

There are so many instances in our modern world where a merchant needs to sit down with a marketer and have an honest discussion about the incessant discounting marketers crave. Teaching a customer to value a category only when there is a promotion is teaching a customer the wrong lesson.

P.S.:  I once worked with a Chief Merchandising Officer. This woman told me that it was her job to ask marketers questions, and when the answer to the question wasn't to her liking, it was her job to roll up a newspaper and swat the marketer across the forehead with the newspaper. Yeah, times were different in the 1990s.

Merchandise/Category Solar System

It's becoming clear that all of your Category Development work is dependent upon having a viable Merchandise Solar System.

In other words, you have a category that most customers prefer to purchase from. This is your "Star". Everything revolves around the Star.

You have planets. Planets revolve around the star, but planets have their own moons as well. For instance, in an apparel brand you might have Mens Casual ... that would be a planet that revolves around the Star (Womens Casual, for instance), but Mens would have moons as well (Mens Outerwear, Mens Footwear).

You have comets. Comets have unusual orbits and they come in-and-out at odd times. Think about certain Christmas gifts you might sell ... these items are irrelevant the entire year and then for six weeks they appear with a green tail, not to be seen again after December 20th(ish) ... until the following Christmas season.

Once you understand what your Solar System looks like, you make smarter decisions. Want to sell more Mens Outerwear? Sure, you can pay for keywords, or you can develop Mens Casual so that you have more "pre-qualified" customers who want to buy Mens Outerwear. The latter point is frequently missed among marketers. Use your categories appropriately and you can grow a moon-level category by growing a planet-level category, and the planet-level category can be grown by attracting customers to your "Star".

Your own Category Development project (click here) helps you get started on this journey.

Valentine's Day: A Category Comet

Tomorrow I'll share a bit more about Stars / Planets / Moons / Comets / Asteroids and how the concepts fit into a Category Solar System.

Valentine's Day is an interesting concept. Some brands specialize in gifts for different occasions. If you have a category called "Flowers", you probably spread out purchases across several occasions, and you have a Planet.

But if you have a category called "Valentine's Day Flowers", well, now you have a Comet. The customer only needs this product once-a-year. And if you cannot convince the customer to purchase anything else during the year, then the category becomes a Comet ... and kind of hurts your brand.

You want customers who have reasons to purchase four times a year ... and if categories work against this goal, the category might still be viable (i.e. highly profitable).

Or, the category might not belong in your assortment.

P.S.: This is where somebody should be asking a question ... "What if our category hierarchy is flawed? Shouldn't the analyst fit the assortment together based on the products that tend to sell together at certain times of the year?" Yes, somebody should be asking that question!

Category Development and Discounting

Let's take a look at discounting within the framework of our Category Development work. Here's the table we've been reviewing for a week now (yeah, just one table).

The final column in this table is "% Sold Below Av.". Here, we calculate the percentage of sales within a category that are sold below the historical average price point of an item.

For instance, pretend that an item sells for $50. The brand discounts frequently. Say that 10 customers purchase one of this item each, at the following prices.

• $50.
• $50.
• $45.
• $40.
• $40.
• $35.
• $35.
• $35.
• $30.
• $25.

In this case, the item sells for an average of $38.50.

Anytime this item sells for less than $38.50, the item is selling below the historical average price point for this item.

In other words, anytime the item sold for $35, $30, or $25, the item sold below the historical average price point for this item.

Now go back to the table. What do you observe at a Category level, especially for Categories 6/7/10/11?

• 41.5% of Category 6 sales are below the historical average price point.
• 55.7% of Category 7 sales are below the historical average price point.
• 46.4% of Category 10 sales are below the historical average price point.
• 45.0% of Category 11 sales are below the historical average price point.

Yeah, this brand discounts the living daylights out of products. It's "who" this brand is.

Later, I will run models that determine if incessant discounting helps or hurts future profit. In most of my projects, incessant discounting is negatively correlated with future profitability.

We're Still Not Done With This Table, Are We?

We've spent nearly a week studying one simple table. One week!!

Remember:

• Category 11 is the Sun in the Category Solar System.
• Categories 6/7 are Major Planets.
• Category 10 behaves like a Comet, not interacting a ton with other Categories (based on what we've witnessed thus far).

"% New Merch" represents the share of sales last year within the Category that came from items that were new in the past year. Let's look at our four key Categories.

• 39.6% of Category 6 sales come from items new in the past year.
• 8.0% of Category 7 sales come from items new in the past year.
• 4.6% of Category 10 sales come from items new in the past year.
• 13.0% of Category 11 sales come from items new in the past year.

The product development folks appear to be losing their battle. They are developing several Categories (2/3/4/6/8/9). But only one of the four key Categories is being developed.

Having worked on a ton of this stuff over the past decade, it is generally true that if you fail to develop new products/merchandise/items today, you will have a sales problem tomorrow.

In these projects, I'd need to have a discussion with the CEO or Chief Merchant, in order to understand what the logic is for Categories 7/10/11. In a separate analysis, I observed that sales of new items in Categories 7/10 are down about 35% over the past three years ... whereas sales of new items in Category 11 are actually growing year-over-year. There are always subtleties in this work. Dig in and figure out what is going on.

Interested in having me run a Category Development Project for you? Project pricing and file layouts can be found here.