Winning Items? Or Other Items?

Look at the bar chart below.

A first-time buyer buys a mix of items, no doubt, but the items marginally skew toward "anything", meaning that the items are not skewed to best sellers (those items have a value of 0.00 in this analysis ... low-selling items have a value of 1.00 in this analysis).

Outside of the crazy customers who buy all the time (often employees), loyal customers tend to skew to best-selling items, in this case.

Every company has a personality ... this company gives discounts to best customers, and best customers appear to buy winning / best selling items. One might surmise that this company is discounting best-sellers to loyal buyers.

A common trap clients fall into is the trap where loyal customers like long-term best-selling items, thereby paralyzing the brand when a merchant wants to move the brand forward with new items not guaranteed to sell well. When best customers like best items (which have been sold for a long time), the brand cannot move forward ... customers will hold the brand hostage.

Life Stage Data

Some of the most enjoyable work I perform surrounds the life stage the customer is in.

In the bar chart below, we evaluate customers after a 1st / 2nd / 3rd / ... / 51st+ order. Within that order within the life stage, the chart evaluates the percentage of the amount spent that was on items selling below their historical average price point.

For this brand, what does the data suggest?

It suggests that the brand discounts heavily to best customers. Less than 25% of sales from first-time buyers is discounted ... after ten purchases, more than 40% of sales are discounted.

Every company has a personality - what the company believes in is revealed through the data sent to me. This company cares about loyal buyers.

Chicken Efficiency

Via Twitter user @popwreckoning, we are introduced to the concept of "Chicken Efficiency". This is one of the best stories I've read all year. Read the text in the image below to the end.

Chicken Efficiency! 

You'll hear about the amazing Cyber Monday that "brands" had all day today. Realize that research professionals, vendors, trade journalists, and pundits are measuring Chicken Efficiency. 

You, however, are measuring profitability. Which is why you do not care about Cyber Monday.

Cyber Monday

It's the day that trade journalists and vendors praise companies for selling a $50 item that costs the brand $25 for just $30. They smugly suggest that all of the additional "traffic" will make up for the $20 of gross margin dollars you give up to make a theoretical "consumer" happy.

a) Selling a $50 item that costs you $25 gives you $25 of gross margin.

b) Selling a $30 item that costs you $25 (40% off, woo-hoo) gives you $5 of gross margin, requiring 5x the traffic converting at the same rate for you to make the same amount of profit.

I've told you this story before ... but it symbolizes Cyber Monday. I'm sitting in an Executive Meeting (as a consultant) at 8:00am on Cyber Monday. An employee walks into the room, hands the CEO a folded piece of paper. The CEO opens the folded piece of paper in a manner not unlike a 16 year old boy would in high school chemistry after having the paper passed across six desks from a girl named Becky, reads the contents, looks up, and then pauses the meeting. He addresses the room.

"Brand X just announced they are at 50% off today. Fifty percent! We're only at 40% off. If we want to remain competitive, we need to be at 50% off today as well. Charlie (the marketing executive), tell you team to redo the creative on the 9am blast and switch to 50% off. Have them create a new discount code and get that code on the website as soon as possible." Charlie, the CMO, headed out of the room with a look on his face like his scrambled eggs for breakfast weren't fully cooked and his tummy was just realizing that fact.

Humans.

Here is a chart from a company that doesn't even care all that much about Cyber Monday. We look at percentage of sales that day that come from items selling below their historical average price point. Tell me what you see.

Yeah, for one day they just gave some merch away in an effort to please, well, um, I have no idea who they were trying to please. By the way, if you average sales for the Monday before Cyber Monday and for the Monday after Cyber Monday, you learn (for this brand) that sales did not increase on Cyber Monday. Prices were lower, profit was lower, sales were identical.

Notice the heavy discounting in the week prior to Christmas. This company switches into "liquidation mode" and starts moving out winter stuff in anticipation of Spring/January.

In mid-November, the brand begins to discount more. The brand discounts even more on Cyber Monday, then reverts back to pre-Cyber-Monday behavior, before clearing out stuff in late December.

What does the graph depicted above look like for your brand?

Which Customer/Product Combination Yields The Best Gross Margin Percentage?

Back to our table format studied this week. This time, each product / customer combination measures gross margin percentage.

The green cells represent the highest gross margin percentages.

Do the best selling items have the highest gross margin percentages?

No.

Do the best customers have the highest gross margin percentages?

No.

If you think your best customers and your best products should yield the highest gross margin percentages, trust your instincts.

This business isn't being optimized properly.

Have you run this table for your brand?

No?

The contact me (kevinh@minethatdata.com) and let's get busy.

New Items Are Not Best Items

Back to the table framework we've been studying this week, take a look at share of sales from new items by product decile and customer decile.

Two things are worth pointing out in this table. First, new items are seldom best-sellers. New items require patience ... they need to be developed (just like customers need to be developed). Second, there are interesting trends in the table. The best customers are less likely to buy new items than are other customers. We teach our best customers what they should purchase, and guess what? They purchase what we tell them to purchase!

The second point is an important one. If our merchandising/product teams want to sell something different, our best customers frequently say "no" ... the best customers hold back brands looking to change. This is why, so often, it is best to launch a whole new brand than it is to try to transform a brand from within. Best customers simply don't want to change.

This Happens A Lot!

I see this one a lot ... look at the New/Reactivated row, and compare the price these customers pay for merchandise compared to the best customers.

Among the best selling items (the 5% column), best customers paid an average of $62.43 per item, whereas new/reactivated customers spent $71.96. This difference isn't as extreme through the remainder of columns, but the difference exists.

This happens A LOT in my project work. Either best customers are being given deals/discounts (whereas new/reactivated buyers are frequently given free shipping), or the merchandise preference is slightly different. Given that I'm controlling for the sales potential of the items in this table, it's a discounting issue. 

Sometimes my clients wonder why it is so hard to acquire customers? Sometimes it's hard because you're asking new/reactivated buyers to pay 10% more per item than your loyal customer base is asked to pay.