Kevin Hillstrom: MineThatData - 5 new articles

I'd run what I now call a "Merchandise Dynamics" project for a brand. This brand was struggling, badly. When I looked at the data, it was obvious that the Merchandise Executive made two classic merchandising mistakes.

1. The Executive discontinued items that customers enjoyed.
2. The Executive failed to find new items that were compelling ... both under-utilizing new item and sourcing new items that performed worse than new items performed historically.

        

The number of gas stations has been in decline for four decades, maybe longer.

Those that stayed in business did stuff like Casey's General Store did ... convenience grocery, pizza, fried chicken, you get the picture.

So yeah, those that stayed in business decided to siphon off some of the Twinkies and Fritos and Large Pepsi drinks sold by other folks.

Of course, if you run a gas station, there is a cliff that your business model is eventually going to plunge into.

• Electric Vehicles.

Almost every decision you are required to make is expensive ... and there is zero guarantee that your decisions will work. In other words ... you can't just sit there and do nothing, but doing something is awful.

This translates to your business. Amazon is mulching e-commerce brands, with paper/printing/postage vendors well on their way to causing an outcome where one cataloger mails a billion pieces per year that cost $27.00 each to produce.

What do you do?

You can't just sit there and do nothing.

Think carefully about gas stations, and how gas stations relate to your challenges, ok?

        

Back in the 2001-2002 timeframe, I'd invite our list partners to a once-a-year summit. I'd line up some Executives to communicate the direction we were headed in as a brand, I'd share out department-level plans, and I'd ask each list partner to present how they thought our brand should evolve and how their brand could help us with that.

I recall in 2002 that the Executive from a co-op shared during her presentation that we needed, and I quote, to be "more Omnichannel". She wanted the same merchandise in all printed materials, and she wanted all customers to see the same merchandise. Same price, same merchandise, same customers. One brand. She wanted us to mail oodles of catalogs to retail customers (meaning she'd make more money for her brand).

There was one little problem with her thesis.

We measured her idea ... we had pieces where we tested same merchandise to same customers regardless of channel. Guess what? THE TACTIC WAS LESS PROFITABLE ... in fact, it was much less profitable. The best thing for the p&l was to tailor the merchandise in various pieces to the customers who liked the merchandise ... and at that time, retail customers liked different merchandise than the rural customer who liked shopping via catalogs. In fact, one of our biggest learnings happened during the 2002 Anniversary Sale, when my team mistakenly mailed our prospect catalog to our best customers and our large catalog to our prospects/lapsed buyers. Sales were virtually unchanged (about a million dollars less on a plan of $16,000,000 if I remember correctly). The fact that about half of our catalog pages generated essentially $0 changed how I viewed the effectiveness of catalog marketing. To this day, I use that knowledge to determine how many pages to mail a customer on an annual basis (click here for pricing).

I shared our data. The vendor Executive looked me in the eyes and said "well, then you're not doing it right".

I was always amazed when vendors would criticize what we were doing, and we'd have data to demonstrate that what we were doing was the most profitable answer. I don't care that you worked with Norm Thompson or Lillian Vernon and they did something unique in 1993, we're doing "x" and we've tested "y" and "x works better than y".

I have a lot of clients who want to know the specific tactics ... A then B then C then D ... that will allow them to be successful. I don't tell them the tactics. It's fool's gold. I don't work for your company and I don't know your customers.

Only you know the answers.

I relished telling this Executive that we were discontinuing our catalog (back in 2005) because Management wanted to implement an Omnichannel approach, and Management decided that the catalog was not a profitable strategy within an Omnichannel approach. Even though I was largely losing my job and more than half of my team was being let go or being reassigned (i.e. my days at Nordstrom were nearly over), I had run the numbers and knew that the catalog had no place in an omnichannel approach.

We were much more profitable the year after we discontinued the catalog ... and a catalog that we thought generated 40%ish of direct channel sales, it turned out, generated about 3% of direct channel sales. Which meant, of course, that all of our testing was right and all of the attribution logic shoved down our throats by vendors was ... wrong. Now, did we get things wrong? Absolutely! We knew the customers who would stop receiving catalogs would spend less ... a lot less. We didn't know that reallocating that money to paid search would bring in so many new customers who liked our new merchandising direction, causing the direct channel to thrive. Life is a highway.

Don't let outsiders tell you that "you're not doing it right". You know more about your customers and your brand than they do. You are the expert.

        

At every company, there are the people who appear to be in control (Owner, Board of Directors, CEO, Executive Team). Then there are the people who are actually in control. The old-timer who "knows where the bodies are buried" and says "no" to things and nobody understands how she's able to get away with saying "no", for instance. Every company has one of those.

Merchants have disproportionate control, and rightly so.

Creative folks have minimal control within a company but are the face of the brand to the customer. As such, they control far more than they realize.

It's always dangerous to outsource control. I'll give you an example. When we shut down the catalog division at Nordstrom in 2005, we replaced it with a brand-centric monthly mailer where third parties (i.e. Coach) could pay us $29,000 a page to advertise their products. They lined up to do so. We'd have no problem stitching together 160 pages of products from all sorts of third parties. Of course, when you are paying $29,000 a page, you demand control over what that page looks like. You pay $116,000 for two spreads (four pages), and you demand who comes before/after your pages too. The resulting hodge-podge was an abomination, and it performed abysmally from a sales standpoint. Of course, with no ad cost, every one of those abominations was profitable. We didn't have control, but we had money.

It's one thing to have the old-timer who knows where the bodies are buried ... that person has control, but that person operates in the best interest of the brand in the vast majority of cases. Your merchants care deeply about your company. So does the IT Director. It's quite another thing to trade control for money. Maybe you are a sports team who takes gambling money ... you give up control of a whole bunch of issues in exchange for cash. Maybe you are a cataloger who lets somebody from your printing vendor be "in residence" at your brand ... why does that person get to sit in on strategy meetings?

I remember a haunting meeting I had in 2001 with a Circulation Director at a competing brand. My predecessor apparently didn't understand how business worked ... he exchanged control of our own customers for cash. He rented the Nordstrom customer list to anybody who bothered to ask (yes, I'm exaggerating for effect). In the case of the Circulation Director, my predecessor leveraged what was called an "exchange" ... instead of each party sending each other $0.13 for every name, each party exchanged names, paying a tiny fee to our third party list partners to facilitate the transaction. Well, the Circulation Director at the other company took about 3,000,000 Nordstrom customers. My predecessor took maybe 300,000 names in exchange. He literally ceded control of Nordstrom customers to a competing brand, with nothing gained whatsoever (because we were exchanging names). When I put a stop to this practice, the Circulation Director for the competing brand pleaded with me to rethink my logic. She argued that I would put her inventory team in a difficult situation (as she'd planned to take another 3,000,000 names from us the next year and the inventory team bought product assuming they were mailing 3,000,000 Nordstrom customers ... fun business if you can get it) and they'd have to liquidate product and have a much less profitable year. Unfortunately, that wasn't my problem. I had to take control back from a competitor. I recall our list vendors saying I was behaving in an unfair manner, pleading with me to ease the relationship back slowly and gracefully. That would have taken five years. Come on! The list vendor allowed the relationship to get out of line, the competitor took complete advantage of us ... it was time for me to take control for the best interests of Nordstrom.

Who is in control where you work?

One of the lower moments in my career came at Nordstrom when my database marketing team needed to execute a strategy and needed a table built in a database. I worked with an IT Director to get these things done. He ticked me off. When I asked him to perform this task for my team he said, and I quote, "We need to pass your idea past our stakeholders and if they approve we'll consider it."

NO!

Stakeholders?

The mistake I made was telling the IT Director that real humans don't say words like "stakeholders". I demeaned the person, and I still feel bad about it 20 years later.

However ...

... I needed to take back control. I didn't need somebody in Finance or the Credit Division or Corporate IT to approve or disapprove of something that I could pay for out of my budget.

We got the table we needed.

Who is in control where you work?

Are the right people in control?

If the wrong people are in control, how do you work around these individuals to get things done?

        

You want to see a completely tepid, bland, homogenized shopping experience? Yes! Ok! Tell me the brands that are represented here. Good luck!

I'm not going to tell you the answer. It's the same darn presentation. This is awful. Same web development tools, same analytics packages yielding the same conversion rates, all praised by digital gurus who love it when brands adhere to "best practices".

It's not a best practice if everything looks this ... the same.

It's tepid.

It's horribly boring.

It's time for a change.

Yes, I'm ready for your complaints.