In A Dying Industry, The Gatekeepers Consume Their Own Customers

Yeah, I got an email message a few days ago.

As linear television dies a slow, painful death, those still using linear television will pay more and more to offset what is being lost ... until the customers that are left say "enough" and move on.

It's no different for my catalog industry readers. I've told many of you privately that the end game for catalog marketing is Amazon paying tens of billions of dollars to mail infrequent catalogs in October.

In many recent video conferences, it's common for the business leader to suggest that "more juice needs to be squeezed from the lemon". That's code for "it's become really hard to acquire new customers". It's a trap ... honestly, it's a bridge ... you generate more from your existing customers to pay for what you are losing in customer acquisition, but the bridge you take maroons you on an island with few choices but to keep getting more from existing customers. What do you do when you can no longer squeeze more out of your existing customers and cannot acquire customers?

I've told you previously about the issue with so many of you accidentally sending me email messages not meant for me ... emails outlining your corporate strategies. It happened again last week. One of my favorites came two years ago.

• An email was mistakenly sent to me from a leading brand in the paper industry.
• The email had an attachment ... a presentation summarizing the past decade and the future as the paper brand saw it.
• The paper brand outlined that demand for "catalog paper" was down between sixty percent and eighty percent in the past twenty years.
• In response, the paper brand consolidated supply, closing plants.
• The presentation outlined how this "strategy" created false demand, allowing them to charge higher prices ... all of which benefitted the paper brand in 2021 when there simply wasn't paper available and demand increased modestly due to the "COVID-bump".

And then these people lie to all of you on LinkedIn ... #PRINTISBACK as they say. It is not back. I have the presentation. I have the receipts. But it is a great example of a dying industry where the gatekeepers consume their own customers.

Man, the stories you've told me about in the past year ... where the gatekeepers treat you the same way that cable tv networks and their service providers treat their customers.

2025 is going to be a wild year, as it becomes even harder to acquire new customers should Google/Facebook continue to perform worse.

P.S.:  We're talking about my "system" here as we wind down the year. There's a reason why you have to have your own system, one independent of the gatekeepers. You are like a 401k manager, diversifying your portfolio. You can't color-by-numbers according to industry best practices. You need your own system, your own way of doing things, one that is not highly reliant upon a small number of partners.

My Business Is Failing: Has To Be The Marketer's Fault, Right?

Maybe. 

But probably not.

In my system, I can immediately diagnose whether the marketer is failing or there is a merchandising problem.

• Hint: There is usually a merchandising problem when business does not meet expectations.

As you've repeatedly heard me say over nearly twenty (20) years, I use my Comp Segment framework to diagnose if there is a marketing/merchandising problem. A weak marketer / modern marketer is likely criticized by Management when business is bad, then performs a "deep dive" of traffic driven to the website, which is a mostly feckless exercise. A strong marketer using my "system" has a dashboard with comp segment metrics.

Let's say the metrics reveal this outcome for November.

• Comp Segment Performance = -11%.
• Comp New/Reactivated Buyer Counts = -9%.
• Net Marketing Impact = -9% - -11% = +2%.

The marketer immediately knows that there is a merchandise problem. The marketer goes to a comp segment dashboard to look at the -11% comp, understanding if it is across all merchandise categories or just within a couple of large categories. The marketer evaluates the metric for new items and existing items, discounted items and full-priced items.

Here is another example that happens, less frequently.

• Comp Segment Performance = -4%.
• Comp New/Reactivated Buyer Counts = -17%.
• Net Marketing Impact = -17% - -4% = -13%.

Comp segment performance isn't great, but the marketing team is the problem here. Marketing problems reveal themselves via new/reactivated buyer counts.

In my "system", a Comp Segment Dashboard quickly tells all employees "who" is causing the problem. It's usually the merchandising team, but it can be failures in marketing spend (i.e. reducing the marketing budget by 20%) or structural failures in new customer acquisition (i.e. catalog brands using failed catalog co-ops) that generate business issues.

The Mix of New/Reactivated Customers and Annual Repurchase Rate

Their annual repurchase rate was 31%.

• "Is that good?"
• "How do we benchmark against the competition? Can you be specific?"

These are the "wrong" questions. They are mainstream questions, the questions of thought leaders.

In my system, your annual repurchase rate is a function of two issues.

• Competent Marketing.
• Your Merchandise Assortment.

For instance, if you were incompetent, you wouldn't have an email marketing program, and your annual repurchase rate would be 20% lower. But you aren't incompetent, are you?

Your Merchandise Assortment determines your annual repurchase rate.

If you sell 100 skus, your annual repurchase rate will be lower than if you sell 1,000 skus, and your annual repurchase rate will be lower if you sell 1,000 skus than if you sell 10,000 skus.

• 20% Annual Rebuy Rate with 100 skus.
• 30% Annual Rebuy Rate with 1,000 skus.
• 35% Annual Rebuy Rate with 10,000 skus.

The 20% / 30% / 35% rates are driven by your merchandise assortment, they aren't driven by marketing strategy. Marketing has no control over 20% vs. 35%, that's dictated by your merchandising team.

Marketing has much more control over new/reactivated customers.

If your merchandising team only has 100 skus, yielding a 20% annual repurchase rate, your marketing team needs to be almost entirely focused on new/reactivated customers. And it will be harder for your marketing team to find new customers because you only have 100 skus.

If your merchandising team has 10,000 skus, yielding a 35% annual repurchase rate, your marketing team can actually start to focus on loyalty efforts, because there will be more loyal buyers because there are more items that the customer can purchase, year-round. Also, it will be easier for your marketing team to find new customers because you have 10,000 skus!

In my "system", the merchant is in charge. The merchant dictates everything. The marketer "reacts" to what the merchant does.

• If you are a modern marketer, you likely fail if you don't accept that the merchant dictates everything.
• If you are operating within my system, the merchant dictates everything for you. Your strategy is a response. This is a good thing ... your job is well defined.

Is it any wonder almost all modern marketing fails? How could it possibly succeed when the marketer has no idea what constraints the merchandising team placed upon the marketer?

Let's Discuss The System

Last Thursday the Packers and the Lions played a highly entertaining game, won by Detroit 34-31 on the last play of the game.

The "easy discussions" surrounded Detroit going for it on 4th down five (5) times, succeeding four times. That's something that any muttonhead can talk about ... "I WOULDN'T HAVE DONE THAT".

Nuanced discussions focused on other topics. On Thursday both Detroit and Green Bay leveraged elements of an offensive philosophy from the 1930s - 1950s (and high school football in the 1990s) called the Wing-T.

• Detroit using elements of the Wing-T offense (click here).

Many teams are running variants of the Wing-T or Single Wing ... Green Bay won two games with a backup quarterback by turning the clock back seventy years ... Arizona uses Kyler Murray in variants of the Single Wing ... and of course San Francisco / Los Angeles Rams / Miami (and even Kansas City) heavily leverage these concepts.

These teams have an offensive philosophy ... they are running a specific offensive "system" (in general, Green Bay / Miami / San Francisco / LA Rams all come out of the Shanahan "tree"). They're generally good at running the football, and they use a lot of window dressing / motion to deceive the defense.

Yeah, this brings me back to you.

In the NFL, offenses look to target weaknesses in the defense.

In your business, the marketer is looking to take advantage of the strengths and weaknesses in his/her merchandising assortment. This is opposite of mainstream thinking, where you are trying to take "market share" from competitors.

• Example:  Mainstream thinking applies deep discounts to increase open rates / click-through rates in email marketing. In my system, the marketer identifies winning items (i.e. best sellers) that align with the purchase history of individual customers (i.e. there are different winning items that work with different customers), crafting a personalized email campaign to each customer that yields increased open rates, click-through rates, and purchases.

Do you see the difference?

A weak marketer applies a discount (hurry, 60% off will end soon ... yeah, same message for the past three weeks, thanks).

A strong marketer with a "system" uses merchandise, avoiding weaknesses in the assortment, attacking strengths at a customer level. Customer response increases (like yards per play increase in a football game). Your odds of winning (i.e. 10% pre-tax profit on an annual basis) increase.

More on the topic of a marketing "system" tomorrow.

Veblen Goods

You probably already know what a Veblen Good is, right? If not, read about it here. 

There are few things more destructive to overall marketing/merchandising strategy than Black Friday / Cyber Monday. It's a complete abomination perpetuated by low-functioning marketers who do not understand customer behavior. If you are angry right now, I'm talking about you.

There's a company most of you know ... they were 40% off before Black Friday / Cyber Monday, they were around 50% off on Black Friday, they were around 60% off on Cyber Monday (sorry you idiots who bought a few days earlier, jokes on you), and then they broke their promise by staying at around 60% off for most of the week following Cyber Monday.

This brand could care less about their customers ... they'd rather gamify some of the customers into a purchase that does not remotely optimize profit ... because ... well, it has to be because they could care less about customers and know nothing about marketing strategy or merchandising strategy.

It's at least 30 years ago now, but I distinctly remember a merchant at Lands' End communicating "assortment strategy" to me. Maybe you have somebody at your current company that cares about you and does something similar? He told me how his core assortment was around $40, stretched up to $80, and then he had items around $100 or $125 that served two purposes.

1. They anchored the rest of the assortment ... in the same way Safeway gladly puts a bottle of Caymus wine in the top row of their assortment for $89, hoping you'll think that $19 is a bargain.
2. Those items were "aspirational" ... meaning that "some" of his customers wanted the status of the $125 item and would gladly pay the money to gain emotional benefits. "I'm wearing a $125 shirt, and you aren't". As a result, he sold more of the $125 items than the math suggested you could sell.

Yea, that's the definition of Veblen Goods.

I recall my first year at Nordstrom ... locked into a conference room at 7:00pm as a new Vice President, while two Merchandising Executives battled each other in front of the Nordstrom family. One argued the importance of a $400 handbag (Veblen Goods), the other argued the importance of a $40 option. Both were ultimately right, neither understood the importance of a merchandising assortment that communicated a story.

I read your email marketing campaigns, folks. Almost all of you care about the cheap half of your assortment, and you are willing to make it cheaper via incomprehensible discounts and promotions. 

Too few of you understand the importance of a Veblen Good.

And maybe that's why you struggle to acquire new customers.

The Hillstrom System

For whatever the reason, this topic has come up many times in the past month.

• "We want to implement your system, the 'Hillstrom System' of analyzing customer performance and then integrate your work with our marketing efforts. Unfortunately, my Marketing Executive and our Analytics Director disagree with your system, so we never make progress. How can I get my team to embrace your system?"

Every Marketing Executive has her own Marketing System, her way for growing a business. You're not going to cause this person to change. It would be like asking Bill Walsh to embrace something other than the West Coast offense - he invented it, why would he go in a different direction? He wouldn't do that.

Analytics professionals dig their heels in much harder. Whereas the Marketing Executive almost always has "a system" unique to her history and skills, the Analytics professional generally cannot define what her system is ... she's never had to think about it ... she simply knows that other people are doing things the wrong way or in a sub-optimal way and has become very good at pointing out that fact. Some analysts possess empathy ... a combination of empathy and smarts is what you are looking for. But by and large, it's hard to find an Analytics professional who has a clear and generally easy to understand "system" to grow your business.

This is where Executives ask me for advice ... "is there an agency who thinks like you think, one we could work with to bypass our internal marketing/analytics challenges?"

There's one that seems to liberally copy many of my concepts ... they either copy them and understand them and bring the concepts of the system into the modern world, or they fully invented something on their own that so completely aligns with my worldview that there is a serendipitous outcome.

Take a look at this (click here) ... it's as close to my worldview as anybody has come to embracing it. Tell me what you think (kevinh@minethatdata.com).

P.S.:  Often, the Executive who wants to implement the "Hillstrom System" is actually looking to implement dashboards. In upcoming posts, I'll tell you more about the "Hillstrom System", but the marketer is often looking for dashboard reporting that the analyst won't provide, and the analyst upon seeing dashboards refuses to program them. Happens all the time. It's why I stay away from "dashboard reporting requests" and "can you help us execute campaigns" requests. Both are symptoms of marketer/analyst disfunction.

This Statement is Accurate, and it is Inaccurate

Here's the link for all of you who love print and think #printisback, which most obviously ... is ... not ... back.

https://www.paperage.com/2024news/11-21-2024afpa-printing-writing-paper-report.html

Back out the impact of the election, and what do the numbers look like? You already know the answer.

#printisnotback

P.S. Ask yourself why the author of the article did two things to tell you that #printisback.

1. Why did the author not send this to you via print, if print is so viable?
2. Why is the author forcing you to PAY for access to the information? If print is so valuable, wouldn't you want every human being to know about it? Why demand that people PAY for it?

P.P.S.:  Some of you are going to argue that you perform matchbacks that prove that #printisback. My condolences to you. There is nothing in marketing more misleading than a matchback analysis among housefile customers. Nothing. It's completely corrupt. It's a confection of vendors in the print industry who want you to think that EVERY order generated by customers is linked to customers who received print. Look at your mail/holdout results, project those findings, then compare to your housefile matchback results. You'll find that you are overstating the impact of #printisback by between 100% and 500%. Yes, that much. You've been lied to that much. Ask yourself why you've been lied to, ok?