Gliebers Dresses: Amazon

Yes, this is business fiction. If you don't like this stuff, why not click here to read about the brutal economics of food delivery.

Setting: The Gliebers Dresses Executive Conference Room

Glenn Glieber (Chief Executive Officer): Well, it's our first get-together of 2017. I love January. It's a time for renewal, rebirth, and returns!

Meredith Thompson (Chief Merchandising Officer): Lois, you look like you had too much fun again last night. Is something wrong?

Lois Gladstone (Chief Financial Officer): I just put together the profit and loss statement for 2016, and frankly, it's a sobering document.

Pepper Morgan Pressley (Chief Marketing Officer): Did we lose money?

Lois Gladstone: Net sales ended up at $50,200,000.

Meredith Thompson: That means we get a bonus. Sales were flat!

Lois Gladstone: Gross Margins were only 39%, fueled by persistent 40% off promotions in November and December.

Meredith Thompson: Oh oh.

Lois Gladstone: Marketing expenses were up to thirteen million dollars, twenty-six percent of net sales.

Meredith Thompson: Pepper, geez.

Pepper Morgan Pressley: We could have gone to 60% off, or we could spend a ton on circulation and paid search to move the stuff nobody wanted to buy. I chose the latter.

Meredith Thompson: People want to buy my stuff. We're just not reaching the right people.

Pepper Morgan Pressley: Right. New item sales were down 27% from last year, and that's at 40% off, a sure sign people loved it.

Meredith Thompson: Do you have a problem, Pepper?

Lois Gladstone: Stop it, both of you. Roger hasn't even opened his mouth yet and we're already at each other's throats.

Roger Morgan (Chief Operations Officer): What?

Lois Gladstone: After you back out pick-pack-ship expenses and fixed costs, we made a profit of eight hundred and twenty-four dollars.

Meredith Thompson: Ha! We made money. That means our bonus payments are going to be 25% of salary. Ohhhhhh boy.

Glenn Glieber: You mean we worked are rear ends off all year long and all we have to show for our efforts is eight hundred and twenty-four dollars?

Lois Gladstone: If we hadn't delayed payments to key vendors, we would have lost money.

Meredith Thompson: Twenty-five percent of two-hundred and fifty-thousand dollars is enough to put a new roof on the house.

Pepper Morgan Pressley: Did you just say you make two-hundred and fifty-thousand dollars a year?

Meredith Thompson: Um.

Pepper Morgan Pressley: Must be nice to be a merchant. Sounds like you merchants are put into a higher pay grade, just like the Information Technology folks.

Roger Morgan:  Before we lambast Meredith, let's consider what I have in my hand. This is a report from Woodside Research, priced at $1,495 before our generous 50% off loyalty discount.

Pepper Morgan Pressley: So we're not the only company who has to discount to stay competitive, huh?

Roger Morgan: The report strongly suggests that brands are now suffering from Amazon's amazing scale, and that the only way to beat Amazon is to join forces with Amazon.

Lois Gladstone: Oh here we go.

Roger Morgan: The experts at Woodside Research suggest that we outsource all of our commodity based items to Amazon. They suggest that we let Amazon do the marketing and selling, and we just earn a portion of the gross margin dollars. The report suggests that this is the only path to profitability for established brands being squeezed by Amazon.

The room is silent.

Roger Morgan: This is the part of the program where you typically tell me I am an idiot.

Lois Gladstone: Tell us more.

Roger Morgan: Really?

Lois Gladstone: Go.

Roger Morgan: Woodside Research suggests that traditional catalog brands give commodity items over to Amazon. Say the item has a cost of goods of $25, and sells for $60. Let Amazon fulfill the item and let them collect around 30%. That sixty dollar item yields $42, subtract the $25 cost of goods, and we take home $17. We each profit at about the same rate.

Meredith Thompson: I don't like it. I don't like it at all.

Roger Morgan: What's not to like? If we sold five million dollars a year, we'd take home $1.4 million of gross margin, and we wouldn't have fulfillment or marketing costs or an increase in fixed costs. It would be like free marketing.

Glenn Glieber: I love free marketing!

Meredith Thompson: No, it wouldn't be.

Roger Morgan: How is it not like free marketing? We don't have to do anything.

Lois Gladstone: I can't believe I'm saying this, but I'm with Roger on this one.

Meredith Thompson: You fools. I spent forty years, my entire career building a catalog brand. You are asking me to hand that over to Amazon? You want Gliebers Dresses to be a supplier to Amazon, not unlike Dockers is to Macy's?

Roger Morgan: Just the commodity-based stuff that we're already competing with Amazon on. All of our special styles, everything that is unique to Gliebers Dresses, we'd keep selling that on our own.

Meredith Thompson: You are a putz. Don't you understand anything about printing efficiencies? If we outsource the commodity-based stuff to Amazon, then we're left with a 48 page catalog and we don't get the printing and postage discounts we deserve.

Roger Morgan: But we make more money.

Lois Gladstone: Yeah!

Meredith Thompson: No we don't. My assortment is meant to be sold as a collection. You are splitting my collection in half, and you are trusting a bunch of eggheads at Amazon to know how best to sell half of my collection.

Pepper Morgan Pressley: The politically correct term is geeks. Not eggheads. Geeks.

Meredith Thompson: They're idiots.

Pepper Morgan Pressley: You've never even met anybody from Amazon!

Meredith Thompson: I will not hand my brand over to a bunch of kale-loving, rain-drenched, latte-swilling millenials who only care about making an $18 commission on every item they sell so that they can purchase a $900,000 fixer-upper on Queen Anne Hill.

Roger Morgan: Nothing has to change, Meredith.

Meredith Thompson: Normally I just reject your ideas out of principle, Roger. But this one is a non-starter. You are killing the catalog.

Roger Morgan: Who cares if we are killing the catalog?

Meredith Thompson: What are you talking about? The catalog IS Gliebers Dresses. End of story.

Roger Morgan: The catalog is a selling channel, no different than an affiliate or Google.

Meredith Thompson: Are you certain you weren't concussed over the New Year's Holiday?

Lois Gladstone: Meredith, be nice.

Meredith Thompson: Oh go out and party this evening. I heard it is Thompson Twins night at Carter's Pub.

Pepper Morgan Pressley: Maybe Meredith isn't articulating this in the kindest way, but she has a valid point. Meredith is asking us to define who we are.

Lois Gladstone: What do you mean?

Pepper Morgan Pressley: Meredith is asking if we are a cataloger who sells merchandise, or if we are a merchant who leverages opportunities? And she is suggesting that we are a cataloger who sells merchandise.

Meredith Thompson: That's exactly who we are.

Pepper Morgan Pressley: But Roger is asking what the best path to relevancy is?

Roger Morgan: I'm really asking us to do what Woodside Research tells us to do. That's why we pay them the big bucks.

Pepper Morgan Pressley: So who are we?

Meredith Thompson: We are not a supplier who cuts jobs in rural New Hampshire so that city liberals in Seattle can get rich.

Lois Gladstone: Now come on Meredith.

Meredith Thompson: How would we be any different than a company that outsources work to Indonesia? We're just outsourcing it to elitists in Seattle.

Lois Gladstone: You already outsource most of your merchandise assembly overseas. You did that twenty-five years ago!

Meredith Thompson: But this is different. This impacts the catalog!

Lois Gladstone: This isn't any different. Twenty-five years ago, you couldn't afford to pay the good people of New Hampshire, so you outsourced stuff to China. Now we can't afford to pick/pack/ship and market here in New Hampshire, so we're considering outsourcing that to Amazon.

Meredith Thompson: Nobody is considering anything. We are a cataloger, and we're not outsourcing our rural New England heritage to urban elitists on the other end of the country. They have no idea who we are and what we stand for.

Lois Gladstone: We stand for a company that made just a bit over eight hundred dollars last year.

Glenn Glieber: Ok, ok. We've talked enough. 

Meredith Thompson: No, we haven't. This isn't a five minute discussion.

Glenn Glieber: Fine, we'll pick up the discussion tomorrow.

Fertilizer and Water

When you plant a garden, do you fertilize it? Or do you just "execute" and hope things grow? Do you water your seedlings or new plants?

This brings me to your marketing campaigns and marketing strategy. Do you just "execute" and hope you sell stuff? Or do you fertilize your campaigns? Do you water your campaigns?

I'm not talking about 40% off plus free shipping - that's cheating. Do you do the hard work to make sure that your campaigns will actually grow and thrive?

This is the essence of the low cost customer acquisition programs I'm talking about. Not payment to a vendor. Instead, I'm taking about fertilizing and watering. Your creative team is the fertilizer. Your marketing team is the water. Your seeds are the merchandise. They all work together.

What Merchandise Do Best Customers Purchase?

Here's our customer file.

Are there any product categories that align with the West-Southwest alignment of best customers?

Sure!

Here is Category 12.

And Category 19.

So we know that Category 19 (in particular) skews to the most loyal buyers. This happens in so many projects - there is a product category that loyal / long-time buyers love and the brand cannot get away from this category. It's a dynamic we all need to know and understand.

How about newbies? What do they buy?

New customers align with Categories 13/20.

Best customers align with Categories 12/19.

So now you know how your customer file is configured.

Ask your analytics guru to run this analysis for you.

And if your analytics guru balks at your request, contact me (kevinh@minethatdata.com) and I will append this information to a hybrid Diagnostics / Merchandise Forensics project.

A-Commerce Replaces E-Commerce

I could be really, really wrong about this.

Really, really wrong.

But I think we've found what we are migrating toward ... we thought it was to mobile/social, and that (me included) was wrong..

Think about this ... 15 years ago, E-Commerce was in the process of replacing Catalog Marketing. In other words, they keyboard replaced paper.

Today ... A-Commerce (Alexa/Amazon and voice via Siri/Google) is in the process of replacing E-Commerce. In other words, voice is replacing the keyboard.

15 years ago, those being replaced (Catalogers) quickly responded by tethering the old business model to the new business model (multi-channel and later, omnichannel). As you know from experience, tethering is a short-term solution that misses the long-term trend.

Today, those being replaced (E-Commerce) are responding by tethering the old business model (E-Commerce) to the new business model. The problem, of course, is that Amazon / Google / Apple control voice, Amazon controls a third of E-Commerce, and Google / Facebook control traffic. So A-Commerce is fundamentally different than E-Commerce in that gatekeepers control voice. So even if you are a classic E-Commerce brand with an A-Commerce strategy, you have to go through a gatekeeper to employ the A-Commerce strategy, thereby weakening your brand while strengthening the gatekeepers.

This is why A-Commerce is different than E-Commerce. In E-Commerce, you largely controlled your experience. In A-Commerce, the gatekeepers control the experience. This makes having a Unique Point of View even more important than before.

How do you think A-Commerce will evolve? Send me a message (kevinh@minethatdata.com). I'll publish good responses.

What Does The Online Ecosystem Look Like?

Recall that call-center buyers dominated the Southern portion of our customer file.

There are several online channels worth looking at. Let's start with retargeting and affiliates and comparison shopping engines.

On average, these channels skew a bit to the Northeast (first-time buyers). The best customers were in the West-Southwest portion of the customer file ... the color here is blue/black. This means best customers typically don't use these channels.

How about Paid/Natural Search?

Ok, this is interesting. Search skews to the Northeast and East-Central portion of the file, where first-time buyers of expensive items (typically only one item per order) reside. In this case, Search is being used by new-to-file customers looking for expensive items (and often at full price).

How about customers who purchase directly from the website, no online ad attribution whatsoever.

Online orders skew to the Northwest portion of the customer file ... average purchase frequency, low price, average items per order. But online buyers also purchase expensive items ... there is a cross-section across the Northern portion of the customer file.

Here is the mix for email buyers.

Look at that - email marketing response aligns almost perfectly with where your best customers reside.

There are two paths that customers appear to take as the progress from newbie to loyal buyer.

1. Online first purchase via high price points and Search, then via online marketing channels, then via the website with no online ad attribution, and then via email marketing at high unit volume and low price points (suggesting that email marketing is calibrated to low price point items - think about that one for a moment).
2. Call center purchases leading to call center purchases via discounts/promotions and low price point items (i.e. the catalog).

Here we are ... a week later ... and we understand how our customer file percolates.

Who Aligns With The Discounts And Promotions?

We have an overall depiction of our twelve-month buyer file.

And we know where the discount/promo buyers reside.

The hottest portion of this image is in the far Southwest corner of the image. Who are those customers?

First of all, these customers purchase many items per order ... 5+ items per order.

Second, these customers tend to purchase low-price-point items.

Interestingly, we know that the Northeast corner of the customer file is comprised of newer-to-file customers ... we now know that those customers buy a small number of expensive items on the first purchase, and they are not being offered discounts/promotions at high rates. Keep that tidbit in the back of your mind.

Now, let me show you something interesting. This is the share of historical demand from the call center (i.e. not online, but an actual customer picking up the phone and placing an order).

Ah HA!!

The Southern side of the image is all call-center buyers. The Northern side of the image is online buyers.

So, the area where the most discounts/promotions happen are comprised of the following:

1. Above-Average Buyers.
2. Low Price Points.
3. High Number of Items per Order.
4. Call-Center Buyers.

It doesn't take a rocket scientist to figure out that this company sends discounts/promotions on the covers of catalogs sent to old-school customers who shop by calling in via the telephone.

But now we know something critical about our customer file.

• We encourage low-price-point good customers with many items per order incentives to purchase as long as the customer purchases via the "catalog" channel.
• We encourage first-time buyers to purchase online via expensive items not as frequently tied to discounts/promotions.

Do you see the fundamental difference in how this company treats different customers in the twelve-month buyer file?

I'm not saying this is right/wrong.

I am saying we need to pause and ask ourselves a question ... "Is this the business we wish to manage?"

Where Are The Discount And Promotion Buyers?

Remember our customer file?

The best customers are yellow/white ... on the Southwest portion of the image.

Let's take a look at another attribute. This attribute is the percentage of demand that comes with a discount or a promotion. Same concept - yellow/white is hot, black is cold.

The Southwest portion of this customer file is heavily populated with customers with 40%+ of historical demand from discounts/promotions. Notice that this orb is directionally aligned with better customers.

The Northeast portion of this customer file aligns with < 20% of historical demand from discounts/promotions. This is the portion of the file that aligns with newer-to-file customers with only 1-2 purchases.

Clearly, this is a company that is offering discounts/promotions to better customers. Is that good? Is that bad? Don't know yet, do we? But we are clearly imprinting upon our little ducklings that the more you buy, the more discounts/promotions you get.

Up next - an evaluation of the Southwest portion of the image/customer-file.