Mobile Analysis Week: Forecast Forensics By Channel

Over the previous four days, we analyzed a business that has a burgeoning mobile presence.  We know that mobile is something that resonates with customers of this business.

• Annual sales pass the eyeball test.
• Existing customers are more likely than average to use mobile.
• Mobile customers are becoming more likely to stay within the mobile channel than in the past.
• Online customers are becoming more likely to migrate to the mobile channel in the future.

As you already know, the majority of my consulting projects involve a complex five-year forecasting process ... a 16mb spreadsheet that predicts how customers will migrate across channels in the next five years.


Let's apply the spreadsheet to our business.  Click on the image below to make it larger:

In this forecast, I maintained the trends observed in the past year.  Each subsequent year, I decrease new online customers at the rate that they were decreasing due to increases in the mobile channel.  I increase new mobile and social customers at the same rates that they were increasing in the past two years.  And I use the same migration trends that we observed last year ... we know this is a false assumption, because customers are migrating to mobile at ever-increasing rates, but let's go with this assumption for the purposes of our blog post.

First of all, this business is not growing, it's a static business that is in balance between sales from new customers and sales lost by previously loyal customers.

Second, given the trends observed last year, we can clearly see that old-school channels like the telephone are in decline.  E-mail and Search are exhibiting modest growth.  Social is growing, but not at a rate that would impress even the most ardent supporter of the channel.

Mobile, however, is growing at a healthy rate, 21.1% per year, every year ... and this only takes into account what is likely to happen if trends stay the same as they were in 2010.  We know that this is unlikely.


If trends accelerate, we'll see mobile at $5 million or $8 million ... and we'll see the online channel suffer more as a consequence.  And when that happens, oh, look out ... organizationally, that kind of channel shift sends shock waves through career paths, investment strategies, and the "informal internal pecking order", if you will.

Again, let's look at the evidence:

• Annual sales pass the eyeball test.
• Existing customers are more likely than average to use mobile.
• Mobile customers are becoming more likely to stay within the mobile channel than in the past.
• Online customers are becoming more likely to migrate to the mobile channel in the future.
• Our five-year sales forecast, quite conservative in nature because it doesn't factor in changes in adoption rate, strongly suggests that e-commerce will suffer in the future as the mobile channel encourages channel shift.

This is the introductory analysis I advocate for all retail/e-commerce/catalog brands with a mobile or social presence ... it's step one of the process of learning the impact of a new channel on a legacy business.  If you can demonstrate each piece of evidence that we demonstrated, then as Executives, we have no choice but to dive-in with both feet, maximizing the mobile experience for our customers.


If, however, the data shows that mobile growth is more similar to the growth observed in the social channel in our analysis, well, then we don't have to run around with our hair on fire trying to maximize the mobile channel.


Make sense?


Ready to run your own analysis?


Need help?  Hire me, and I'll do it for you, I've got the tools to do it.  Click here to contact me.

Mobile Analysis Week: Migration To Mobile

In our example, mobile passed the "eyeball test", exhibiting exponential sales growth.  We demonstrated that, by and large, it is e-commerce customers who are migrating away from e-commerce, migrating to mobile.

Let's look at an oldie-but-a-goodie, the "Migration Probability Table".  Remember this one?  We used this a half-decade ago to demonstrate how customers were leaving the catalog channel for e-commerce.  It's only logical that the same methodology can be used to measure the shift from e-commerce to mobile, right?

Take a look at the Mobile column.  Each row in the top half of the table represents the probability of a mobile customer purchasing in each channel in the next twelve months.  The mobile customer, for instance, has a 10.4% chance of buying via the telephone in the next year.

It's the bottom half of the table that is most important.  Here, we calculate an index, we divide the probability of buying from any given channel by the overall repurchase rate.  For the telephone channel, we divide 10.4% by 58.8%, yielding an index of 17.8%.  When the index is below 20%, it means that customers, by and large, do not like to purchase from that channel.

When the index is between 20% and 50%, it means that customers like to buy from the channel.

When the index is greater than 50%, it means that customers are transferring their loyalty to that channel.

What do we observe with the mobile channel?  Well, the customers are about twice as likely to buy from mobile again as they are to buy from either e-commerce or e-mail.


Now, these numbers don't mean anything unless we have something to compare them against.  Let's see what the trends looked like one year earlier.

Oh oh.  Just one year earlier, the mobile buyer was more likely to shop via e-commerce than via mobile again.  In other words, a year ago, customers who shopped via mobile went back to buying from e-commerce.  Today, customers who shop via mobile generally stay within the mobile channel.  This is an important finding ... it means that the mobile channel is much "stickier" than it used to be, it means that any sales trends we are already observing should accelerate in future years.

If the rates were the same as they were in 2008-2009, then we'd be likely to conclude that mobile is more of a "fad", because customers were going back to e-commerce after a mobile purchase. 

One last thing to look at ... look down the online channel row.

• 2008 - 2009 = 5.3% index into the mobile channel.
• 2009 - 2010 = 12.7% index into the mobile channel.

While not significant, yet, the trend is clear ... online customers appear to be migrating to the mobile channel at faster rates.

In our example, mobile is passing all of our tests.

• It passed the eyeball test.
• Existing customers are migrating to mobile.
• Online customers are migrating to mobile at increasing rates.
• Mobile is holding on to customers at increasing rates, and is not sending customers to other channels at the same rates it used to.

In other words, mobile is a force to be reckoned with, for this business.


Up Next:  We'll take a look at a five-year sales forecast for each channel.

Mobile Analysis Week: New vs. Existing Customers

We'll keep things simple today.

When you are evaluating a new channel, like mobile, you want to understand if the customers who use this channel are your existing customers.  When existing customers are first to use a new channel, and the new channel passes the "eyeball test", you have the very real potential for channel shift.  When new customers are first to use a new channel, and the new channel passes the "eyeball test", you have the potential for significant sales growth.

Let's look at our sample company.  In 2010, here's what we observed:

• Telephone Channel = 62% of customers were existing customers.
• Online Channel = 54% of customers were existing customers.
• E-Mail Channel = 68% of customers were existing customers.
• Search Channel = 53% of customers were existing customers.
• Mobile Channel = 67% of customers were existing customers.
• Social Channel = 67% of customers were existing customers.

In this case, mobile skews more to existing customers than does the average channel, suggesting that, long-term, channel shift is going to be a problem.


Let's look at demand in the two years prior to the customer migrating to the mobile channel:

• Telephone Demand = $133.
• Online Demand = $610.
• E-Mail Demand = $153.
• Search Demand = $62.
• Mobile Demand = $74.
• Social Demand = $23.

Though demand is spread across all channels, it's obvious that the e-commerce customer is shifting from e-commerce to mobile.

In our example, mobile passed the eyeball test.  Mobile is, on average, generating volume from existing customers, and the existing customers are, by and large, prior e-commerce buyers.  Long-term, this is going to be a problem for the e-commerce channel.


Not many folks talk about this stuff ... mobile is seen as a +1 channel, a way to grow sales.  New channels are seldom in a +1 situation ... often, the new channel adds little in incremental sales over time ... just ask catalogers who went through this whole transition in the past decade.  In fact, e-commerce experts would be well-served to interview a half-dozen catalog leaders about the changes that happen in an organization when a new channel begins to cannibalize a legacy channel.


Up Next:  We'll explore the Migration Probability Table.  This will tell us if the switch from e-commerce to mobile is happening at an increasing rate, and it will tell us if mobile buyers are willing to go back to shopping via e-commerce.

Mobile Analysis Week: The Eyeball Test

Those who lived through the transition from traditional direct marketing to e-commerce knew a simple fact:

• E-commerce passed the "eyeball test".

In other words, you looked at sales totals, and you could "see" that e-commerce mattered.  I worked at Eddie Bauer during that time ... we did something like $15 million in e-commerce in 1997, $60 million in 1998, and $100 million in 1999.  Going from $0 to $100,000,000 in five years means that the emerging channel "passed the eyeball test" ... regardless of the attribution challenges that still plague e-commerce.


So take a look at your sales trends by year.  Just give the sales trends a simple eyeball test.  Here's data for a company we're going to analyze in this series:

• Telephone Demand:  2008 = $7.5 million.  2009 = $6.0 million.  2010 = $5.6 million.
• Online Channel:  2008 = $12.0 million.  2009 = $10.8 million.  2010 = $11.0 million.
• E-Mail Channel:  2008 = $4.5 million.  2009 = $4.2 million.  2010 = $5.2 million.
• Search Channel:  2008 = $2.1 million.  2009 = $2.2 million.  2010 = $2.5 million.
• Social Channel:  2008 = $0.4 million.  2009 = $0.6 million.  2010 = $0.9 million.
• Mobile Channel:  2008 = $0.1 million.  2009 = $0.5 million.  2010 = $1.3 million.

Look at online, e-mail, and search.  In 2008, those channels generated $18.6 million.  In 2010, those channels generated $18.7 million.  In other words, these channels are no longer growing, they are mature.  Look at demand from the telephone ... this is in free-fall, as customers abandon customer service departments in favor of e-commerce.

Now it is time for the eyeball test.

Look at Social.  Social is growing, but is not exhibiting exponential growth.  Social, in this example, does not pass the eyeball test.  It's maybe 4% of sales today, and it's hard to see a scenario where it could be 20% of sales in two years.

Look at Mobile.  Mobile is experiencing exponential growth.  Mobile passes the eyeball test.  Mobile could easily generate $6.0 million two years from now, $12.0 million four years from now.  Or not.  But it certainly passes the eyeball test.

If you are dabbling in Mobile, run a rolling-twelve-month demand analysis ... is growth exponential, linear, or non-existent?  Channels that will cause a fundamental shift in customer behavior start slow, but tend to exhibit exponential growth.

Tomorrow, we analyze new vs. existing customers.

Mobile Analysis Week

By now, it's likely that a tech writer, consultant, blogger, lead analyst at Woodside Research, or a member of the Twitterati mentioned to you that you will be out of business by May if you don't have have an industry-leading mobile app or mobile website.  These individuals seldom work at the kind of companies that you work for, and they don't have actual customer data to analyze adoption rates across various mobile initiatives.  They simply have strongly worded opinions.

We have a long history of strongly worded opinions during times of technological change.  We cheered Pets.com as they "monetized eyeballs".  We asked "... do you Yahoo!"?  We demanded that individuals get Hotmail accounts or risk being left behind.  We couldn't believe that Apple would charge people $300 for a portable music player, or that they would merge communication with music.  We decided that citizen journalists would replace real journalists by hosting blogs, we theorized how people using Typepad would suffer while those using Wordpress would thrive.  We worried that Microsoft had too much control over the internet.  We worried that AOL had too much control over the internet.  We worried that Google had too much control over the internet.  We worried that MySpace had too much control over the internet.  We worried that Facebook had too much control over the internet.  We theorized that we'd all interact in virtual worlds like "Second Life", buying virtual products at real companies like Sears.  We lamented the death of blogging (after celebrating the fact that blogging would take over the world three years earlier) with the advent of Twitter.  We demanded that retailers give out 20% discounts to any individual using Foresquare.  We cheered the advent of social commerce.  We valued Groupon at something like two trillion dollars because they created an e-mail marketing list.  We proclaimed the death of catalog marketing.  We proclaimed the death of e-mail marketing.  We proclaimed the death of the newspaper industry.  We proclaimed the death of the thirty-second television ad.  Now some are proclaiming the death of e-commerce and the internet.

In other words, we're always wrong.  We utter strongly worded opinions, and we're usually wrong.

So instead of managing a fear-based life where we react to every strongly worded opinion, why don't we investigate a rational approach to technological change?

Why don't we analyze customers as they manage the transition from one form of technology to another?

This week, we're going to review the Multichannel Forensics framework that helped us understand customers as they transitioned from catalogs to e-commerce, and from e-commerce to retail.  This week, we'll apply the framework to customers as they migrate from e-commerce to social/mobile.

And a word of caution.  Let's not start nibbling around the edges of the cookie by getting into long-winded discussion about how to classify a mobile website vs. a mobile app, or an Android app vs. one from Apple, or 3G vs. 4G vs. psuedo-4G speeds, or the importance of integrating channels and offering the right message at the right time to the right customer.  We always do this, and by doing it, we avoid the real issue.

There are at least three real issues that we'll address.

1. Will our customers embrace new technology? (hint, many customers don't, ask catalogers targeting customers who live in rural New England).
2. If our customers embrace new technology, how fast will the transition happen?
3. If the transition happens quickly, what happens to existing marketing channels?

Tomorrow, we begin with a simple analysis, then we increase the complexity during the remainder of the week.

Analytics Sunday: Chip On Your Shoulder

This is a picture of Aaron Rodgers, the quarterback of the Green Bay Packers.  Today, Green Bay plays Pittsburgh in the Super Bowl.

It's been said that Mr. Rodgers sometimes has a "Chip On His Shoulder".  In other words, from time to time, he'll feel "slighted" when something happens to him, causing him to motivate himself to perform even better to prove others wrong.  He wasn't recruited by a big college (or, for that matter, any college).  He was drafted 25th by Green Bay in the 2005 draft.  He wasn't selected for the Pro Bowl this year, in spite of staggering statistics and a Super Bowl caliber team.  He replaced a beloved legend.  He used these issues to amp his performance, to prove the doubters wrong.  Heck, it has been said that he has a list of every NFL team that chose not to draft him ... he seeks to play well against those teams to prove to those teams that they should have drafted him!


Negative events can define you, or negative events can motivate you.  In Aaron's case, he uses each slight as an opportunity to prove his doubters wrong.  And here he is today, leading his team in the Super Bowl.


You are an analytics expert.  This means that, at some point, you're going to alienate folks, especially the punditocracy.  There are executives, psuedo-analysts, information technology leaders, data mining practitioners, business intelligence leaders, vendors, and web analytics experts who have a financial or political interest in protecting their position in the industry.  You will threaten their position, because you are going to innovate, you are going to offer metrics or analyses that contradict their worldview, undermine their business model, impede upon the message they actively sell to their own community, or diminish their perceived influence in the industry.


Their objective is to shut you down.  The executive won't share your data in important meetings.  The IT staffer won't create the database you need to conduct your analytics work.  The web analytics leader will produce research that illustrates the exact opposite fact that your research illustrates.


When the community attempts to shut you down, you have at least four choices.

1. You can get in line, an do exactly what the punditocracy wants you to do.  In kind, you will earn psuedo-love from the punditocracy.
2. You can fight, tooth and nail, to prove that you are right, and you may or may not win.
3. You can turn the other cheek.
4. You can place a chip on your shoulder.

Right or wrong, I tend to place a chip on my shoulder, though I know it's written that it is wiser to turn the other cheek.  I tend to be motivated by being challenged, motivated to demonstrate what the data is telling us is more relevant than the opinions of a select few.  I can look back over nearly 25 years in this industry, counting all of the innovations that grew from times when somebody disagreed with what the data suggested.


Now, there's an art to being motivated by negative feedback.  If you get negative feedback because what you are sharing is fundamentally flawed, well, then you need to accept the negative feedback.


But if you get negative feedback because what you are sharing stands in stark contrast to the published message of the punditocracy, and your message accurately represents customer behavior, then you've earned the right to soldier on, and you probably need to soldier on in a diplomatic manner.  You can still do this while having a chip on your shoulder.


Be motivated by the data, and the truth!  Don't let an executive or industry pundit squelch you, instead, find a forum to share your message.


An example:  I once worked with an executive who did not agree with the message I was sharing, though the message was going to be very important to the future of the company.  So I created a daily quiz that I shared with the executive team ... I asked a question, gave three choices, then shared the answer revealed by actual customer data.  Did this technique nearly get me fired?  Absolutely.  Was I able to evangelize my message and teach folks how customers truly behaved?  Absolutely!  Did I have a chip on my shoulder.  Oh yes!  I was not going to be stopped, I was motivated to share facts as revealed by actual customer behavior, I was not going to be motivated by a potential hypothesis that fit somebody else's worldview and was only valid for a minority of customers.


If you do your job well, you are going to be excluded, you are going to be criticized.  

Somebody is always going to demand that you "stay in your swim lane".  

If you're going to be forced to stay in your swim lane, you may as well try to win the race.

Dear Catalog CEOs: NEMOA Questions

Dear Catalog CEOs:

NEMOA hosts their annual spring event in a few weeks (click here to view the agenda).

There are three reasons I am supportive of NEMOA.

1. They gave me an opportunity to speak in 2007, when I was a nobody consultant who just finished working for twelve years in the Pacific Northwest, far away from the hallowed catalog geography known as New England.
2. NEMOA stood behind you, always, steadfast.  The vast majority of organizations abandoned you long ago, or abandoned you recently, out of necessity, or out of a lust to chase the next shiny new object in the marketing toolkit.
3. NEMOA modernized.  They try.  They maintain their catalog roots, while giving an acceptable amount of mindshare to new topics.

So I wholeheartedly encourage you to attend their conference next month.

And when you attend, why not ask your peers a series of questions.

1. Are any of you, after proper attribution, generating 10% or more of your annual sales because of your social media efforts?  If the answer is yes, is your core customer age 55 or older?  If the answer is yes, and your business is non-competitive, what the heck are you doing that is different than what the pundits suggest you do?
2. Are any of you, after proper attribution, generating 10% or more of your annual sales because of your mobile marketing efforts?  If the answer is yes, is your core customer age 55 or older?  If the answer is yes, and your business is non-competitive, what the heck are you doing that is different than what the pundits suggest you do?
3. Are any of you seeing 15% or greater improvements in productivity, above and beyond your core merchandising productivity, from your list rental or co-op activities?  If so, what is your vendor doing to generate such significant increases?
4. Many catalogers with a 45-49 year old audience are observing an interesting phenomenon ... they are able to significantly reduce page counts without a significant drop in demand (after matchback).  How many of you are actively testing page counts and unique formats, and what have you learned?
5. The year is 2015.  What does your catalog business look like?  What is the mix of sales by marketing channel?  What are you doing to grow your business in each advertising channel, so that your business looks in 2015 the way you want for it to look?
6. If your customer is age 60-64, what do you think your customer will look like in the year 2020?  Will your customer be age 70-74 (i.e. you will follow this cohort into their 70s), or will you appeal to a 60-64 year old customer?  This is important, of course, because if your customer ages with time, you'll need a plan for maintaining the vitality of your brand, right?
7. If your demographics aren't favorable, what is your exit strategy, or your strategy to reinvent yourself?  Exit can mean any number of things, of course.
8. Merchandise means everything.  Nobody talks about it, because it is more fun to wonder if LivingSocial will outperform Groupon, but customers buy from us, in large part, because we offer merchandise that meets a genuine customer need.  Ask a non-competitive brand at NEMOA what their merchandising secrets are.  And, in kind, what can you share with your peers?
9. Talk with your peers about succession planning.  Specifically, our businesses have fragmented in ways we couldn't imagine.  How do we find a person to run the business in 2017, and what kind of skills does this person need to possess?  Will a social media expert be able to run your company?  A copywriter?  An accounts payable analyst?

That's only nine questions.  I could have written nine hundred questions if I wanted to.  Please meet with your peers and discuss these and other questions.  Skype me into your meetings, if necessary.