Here's A Huge Advantage

Your annual repurchase rate tells you an awful lot about File Power.

Say only 20% of last year's customer base will buy this year. Unless those customers are spending $3,000 a year, you are going to have a File Power problem, one that is unavoidable. Your entire business model surrounds finding new customers at low-cost or no-cost. I can't tell you how often it is that real Business Leaders with credible skills have no idea this is how their business operates.

Meanwhile if you retain 50% of last year's customer base, a different dynamic happens. You have File Power. In other words, a customer who buys today will generate enough incremental purchases in the future to cause you to be willing to invest in the customer today. You have a different dynamic, and it is your job to capitalize on that dynamic.

A 50% rebuy rate is a huge advantage over a 20% rebuy rate. Either business model can be very profitable, but the business model with a high rebuy rate acts like a 401k earning interest over time.

Real-Time File Power Decisions

Here's one for you ... the Oakland A's will not broadcast on terrestrial radio ... you can stream their radio-based games online from now on (click here).

Of course, this is the future.

And of course, if you are 71 year old driving across Central California, this is gonna stink (while the 31 year old will fire up TuneIn and ... no worries ... assuming that 31 year olds even care about listening to baseball anymore).

From a File Power standpoint?

• You are giving up on customers age 62+ who listen on radio. Do they have other options? Absolutely. But you'll lose File Power here.
• You are moving into the future. You'll gain File Power here.

This is the EXACT decision that would hold-up 90% of my readers ... "how can they give up on the 71 year old riding in a car???" Catalogers know this all-too-well ... they wouldn't give up on the 71 year old. And in the process, the cataloger misses the future.

What would you do?

Be honest.

It's really, really hard to truly move into the future, isn't it? Too often, we try to move into the future while protecting the past. That's a recipe for short-term File Power gains coupled with long-term File Power pain.

When Transactions Disappear

The 35% of my subscriber base that is catalog-centric is going through a ruthless transformation.

Fifteen years ago these subscribers made a major shift ... instead of leaving behind lists and embracing digital strategy, many (most) of the catalog professionals shifted to what are called "catalog co-ops". They gave their purchase transactions to the co-ops (for free) ... then paid money to pull unique non-duplicated names out of the co-ops for one-time mailing use.

The strategy "worked". From 2006-2010 the list industry died, and catalogers kicked the digital can further down the road while maintaining current-day catalog volume.

Here's a good way to think about what a catalog co-op meant to a cataloger. Let's pretend that there are five names available in the database, and the cataloger needs to mail three names.

1. Customer #1 = 8 catalogers bought from last month, $800.
2. Customer #2 = 5 catalogers bought from last month, $800.
3. Customer #3 = 3 catalogers bought from last month, $300.
4. Customer #4 = 2 catalogers bought from last month, $150.
5. Customer #5 = 1 cataloger bought from last month, $75.
6. Total File Power = 800 + 800 + 300 + 150 + 75 = $2,125.
7. Total File Power Selected = 800 + 800 + 300 = $1,900.

The co-op (obviously) selected Customer #1, Customer #2, and Customer #3. The cataloger mailed the customers. The cataloger acquired new customers. All was good.

As catalogers went out of business and as Amazon cannibalized transactions typically reserved for catalog brands, the co-op file weakened. There was less file power. The situation looked like this in 2015:

1. Customer #1 = 8 catalogers bought from last month, $800.
2. Customer #2 = 5 catalogers bought from last month, $800.
3. Customer #3 = 2 catalogers bought from last month, $200.
4. Customer #4 = 1 cataloger bought from last month, $75.
5. Customer #5 = No longer exists.
6. Total File Power = 800 + 800 + 200 + 75 + 0 = $1,875.
7. Total File Power Selected = 800 + 800 + 200 = $1,800.

Do you see the subtle difference?

• File Power from the 3 Names Selected was $1,900, now is $1,800.
• Total Co-Op File Power was $2,125, now is $1,875.

From a co-op standpoint you can see the collapse happening in real time (-12%), with a 20% reduction in the overall file.

From a cataloger standpoint you don't notice the change happening as dramatically (-5%).

Fast forward to 2020.

1. Customer #1 = 8 catalogers bought from last month, $800.
2. Customer #2 =No longer exists.
3. Customer #3 = 2 catalogers bought from last month, $150.
4. Customer #4 = 1 cataloger bought from last month, $75.
5. Customer #5 = No longer exists.
6. Total File Power = 800 + 0 + 150 + 75 + 0 = $1,025.
7. Total File Power Selected = 800 + 150 + 75 = $1,025.

The File Power of the names you select in 2020 is about half of what it was in 2010. You're still getting three names, but you get one great customer, one tepid customer with lower File Power, and one customer that you never used to select but are required to select now because a good customer disappeared.

When we (Bill LaPierre and I) talk about the "Collapse of the Co-Ops", this is the dynamic we are describing.

This dynamic requires you to be oh-so-sophisticated at Digital Marketing to make up the difference. But because you've delayed being oh-so-sophisticated at Digital Marketing for the past fifteen years, you aged your existing customer base to a customer base that is not terribly responsive to Digital Marketing, rendering Digital Marketing less effective.

Oh oh.

This is what happens when co-op transactions disappear.

This is why understanding File Power is so darn important.

American Eagle

Read here.

Pay attention to the Macy's comment ... because Macy's will close stores, mall traffic will decline, and the decline is expected to hurt American Eagle.

If you were measuring File Power at American Eagle, you'd analyze data at a market level. You'd separate markets where Macy's closed stores historically from those where they are currently closing stores to those where Macy's has active stores.

• You'd measure downstream File Power from existing 12-month buyers in each segment.
• You'd measure new/reactivated customers in each segment.
• You'd quantify how future sales will be impacted as a consequence.
• Any sales downturn represents File Power lost due to Macy's closures.

You run analytics like these ... right?

File Power is a critically important aspect of modern marketing ... we need to understand what others are doing to us, we need to understand what we're doing to ourselves, and we need to understand what the future holds. All can be done within the File Power framework.

Walmart = Tepid Q4

Here you go (click here).

• US Retail Comps = +1.9%.
• E-Commerce = +35%.

We've all been there. When e-commerce thrives and retail comps struggle, we're dealing with a classic case of File Power.

Think of it this way. Results suggest that sales were $141.7 billion (yes ... billion) in Q4. We can reverse-engineer growth (yes - some new stores muck-up the math, but for illustrative efforts please play along here).

• Last Year Q4 Sales = $137.1 Billion.
• Assuming 4.5% of net sales via e-commerce, we get $130.9 billion at retail and $6.2 billion via e-commerce.
• Retail Growth = $130.9 billion * 1.019 = $133.4 billion ... growth = $2.5 billion.
• Online Growth = $6.2 billion * 1.350 = $8.3 billion ... growth = $2.1 billion.
• Total Growth = $4.6 billion ... of which 45.6% came from e-commerce.

We can rest assured that Walmart isn't acquiring a ton of new customers.

In other words, as e-commerce grows, those sales either have to be incremental/additive ... or those sales come at the expense of retail.

A significant fraction of those sales HAVE to be coming at the expense of retail ... no added File Power whatsoever.

We've all been there.

• Catalog marketing was destroyed as sales shifted online.
• Retail in-store sales are being mulched as sales shift online.

We all know what comes next, don't we?

Pier 1: Bankrupt

There you go (click here).

You can go back to 2014 and read the positive articles about integrating offline/online and improving the customer experience and providing omnichannel features (click here).

Integrating offline/online ... customer experience ... this stuff sounds seductive. But does it translate to improved File Power? 

Noooo.

Six years ago you had two identical customers ... both loved shopping in stores. One shopped online instead, one kept buying in a store. The analytics demonstrated that File Power did not improve (maybe a few percentage points, a largely useless outcome), but the customer who shopped online now had an incentive to not shop in a store.

• Fewer store visits = reduced store sales.
• Reduced store sales = more discounting to get you in the store.
• More discounting = must discount online as well to be an integrated brand.
• Integrated brand = close stores.
• Closing stores = less retail traffic in general.
• Less retail traffic in general = more store closures.
• Bankrupt.

It's more important than ever to understand File Power, before we do more damage to the brands we manage.

Fake File Power

Here's a case where a $20 purchase leads to a potentially unethical $50 charge (click here).

I had a call a few years ago with the CEO of a company. This person said something interesting ... and I paraphrase below:

• "I can sell anything. I just sweeten up the offer and the text until the customer can't help but buy whatever I choose to sell. Merchandise is unimportant. I just manipulate the customer as I see fit."

We've all been taken advantage of by a "brand" at one point or another. When you are taken advantage of, there is a rapid transfer of wealth. You are misled into giving money today that you may have given to the brand long-term. The customer frequently terminates the relationship as a consequence.

Deception = Fake File Power.