File Power In Practice

So I'm exchanging emails with a digital marketing expert - this person is excited because he acquired new customers at a $10 ROAS.

Now, I already knew the answer (as do you), but I asked the expert if that was a profitable outcome?

His response? "I don't know. I just know that's a good ROAS".

In practice, you have an existing customer base. The existing customer base is capable of spending "x", you'll spend "y" marketing to the customer, yielding "z" dollars of profit.

Profit is a function of the life stage the customer is in. Somebody acquired customers five years ago, and the work that somebody performed back then ends up in your pocketbook via a bonus today, because those customers keep generating profit.

In practice, we want a powerful file. We want as many customers as we can afford, and we want them to generate as much subsequent profit as they can possibly generate. When we figure out ways to generate more profit out of a customer, we are allowed to spend more money acquiring customers ... this behavior is circular because then we have more customers, generating more File Power, allowing us to acquire even more customers.

In my projects, I keep seeing instances of companies that cannot acquire enough new customers to grow. This seems like a Customer Acquisition problem (and it most certainly is a Customer Acquisition problem), but it is also a Customer Loyalty problem. When we cannot figure out how to generate more profit out of a customer, we have to back off on Customer Acquisition to make sure we generate enough short-term profit. Our Customer Loyalty problem accelerates our Customer Acquisition problem.

What drives Customer Loyalty more than anything else?

Merchandise Productivity.

In other words, there's a lot of interconnected pieces. If we take our eyes off of any one of the connected pieces, we lose profit, which hurts our ability to acquire new customers, which shrinks the customer file, which lowers File Power, which costs us more profit, and the circular problem continues iterating through the business.

Everything we do impacts File Power.

So yeah, we want to study File Power, don't we?

Updated Project Offering

To reflect the style of work I'm performing in 2022, I updated my "Hire Kevin" page. Click here for details.

I do have an opening for a project beginning August 15, so if you were thinking about something regarding customer behavior, let's talk.

The Power of File Power

Nice use of words, huh?

Here's something that I frequently see in my work. Look at rebuy rates by segment.

In each segment, rebuy rates are identical on a year-over-year basis.

However, rebuy rates in 2022 are 26.3% whereas rebuy rates were 24.3% the year prior.

This happens because of File Power ... you have 50 more 1x buyers, 200 more 2x buyers, and 250 more 3x+ buyers in 2022. Those customers pay you back.

Management cannot take credit for the increase in Rebuy Rates.

Well, that's not entirely true ... the increase in Rebuy Rates isn't because of anything they've done special this year, it's because of the hard work done by the entire company in previous years.

Story-Based Customer Acquisition

Here's an ad I received. Tell me what the story is that the author is communicating to me.

Now tell me what story is being told here.

The clients I work with who have the best customer acquisition results also have what I'd call "Story-Based Customer Acquisition". They're not just slapping horrifically intrusive/boring ads upon people and saying they're leveraging an "omnichannel advertising approach".

Instead, the best clients have a story to tell, and they use channels to tell the story.

Northwoods Baseball Radio Network

Ok, for something completely different today ... I read this article last week (click here).

Now, if you don't like baseball, if you don't like fiction, if you don't have a problem sleeping, then the intersection of the three will really be jarring to you, so best to stay away.

If you want to enter a bizarre world (and this world must take a considerable amount of time to create), visit here: https://www.sleepbaseball.com/.

Here's A Gem

A vendor sales rep told me the following:

"People think my goal is to make an offer the client cannot refuse. That's not true. My job is to make an offer the client cannot understand."

I recently emailed with an Executive who told me that he felt frustrated because it just wasn't clear what the vendor he was paying agreed to do for him. He kept getting the "that's out of the scope of our relationship" comment that so many of us received over time.

For a lot of companies, things are messy and are about to get really messy. If you are supporting one of my clients, please give 'em a fair chance between now and next March, ok? If you aren't willing to do that, what does that say about you?

Because You Should Read Alternate Points Of View

I have a lot of opinions here - and I'll bite my tongue and let you read the article. You draw your own conclusions, ok? 

https://hbr.org/2022/07/how-paper-catalogs-remain-relevant-in-a-digital-age

P.S.:  The only thing I will say is that if you are going to publish something with conclusions this sweeping, you best have a sample size greater than 8,600 customers to draw sweeping conclusions against. At Nordstrom in 2005-2007, our control groups were 200,000 customers, and the results were still noisy. We got to 200,000 because the statistician who built sample sizes before my team leveraged 5,000 to 10,000 per control group and spent years trying to make sense of gibberish. He made horrible decisions based on gibberish. Only at 200,000 customers did we get reliable results, the kind of results you'd trust publishing against the good name of a major University. Other statisticians will differ with this statement - vet your heroes.

P.P.S.:  There is a way to make results of tests with 8,600 customers credible. You repeat the test a couple dozen times and evaluate the variability of your results. I have many clients who do this ... and a -8% lift and a +24% lift gets averaged to a +8% lift over time. But at least you know it is +8% and not +24% or -8%.