Kevin Hillstrom: MineThatData

Your November / December Forecast

Let's try something ... contact me (kevinh@minethatdata.com) and for a nominal fee I'll produce a forecast for three timeframes, based on how your customer file looks as of today. I mean, it is Forecast Season!

Timeframe #1 = November before the day before Thanksgiving.
Timeframe #2 = Cyber Window ... day before Thanksgiving to the Saturday after Cyber Monday.
Timeframe #3 = Sunday after Cyber Monday - December 31.

If you have a customer file problem, I'll be able to expose it for you quickly (project turnaround would be in just a few days), allowing you to change your marketing investments to help meet your business goals during November / December.

Contact me now (kevinh@minethatdata.com) and I'll turn this one around for you quickly at a cost that you can literally Venmo me the funds.

The Hated Holiday

There's just nothing in ecommerce more rudimentary, nothing that shows your service provider doesn't truly understand business ... than the promotion of Cyber Monday.

Or worse, "BFCM" as the service provider industry calls it.

Yesterday I talked about "double dipping" ... the proven method of acquiring / converting customers in September / October so they are recent and active in November / December, thereby "double dipping" ... generating two orders in a short period of time.

What makes more sense to you?

Acquire a customer or activate a customer in Sep/Oct and then get another quick purchase in Nov/Dec?
Generate an order at 50% off and then the customer doesn't spend money on full priced merchandise the rest of the year while waiting for "BFCM" again? It's good business for service providers. It's not good business for you. Why give away all that gross margin to participate in a service provider holiday?

Have you ever asked yourself why Amazon might benefit from Prime Days in the first week of October? It's almost like they're trying to get customers to double-dip!

Double-Dip Season

As you likely know, in most cases you WANT to acquire a new customer in September or October.

Why?

You get to double-dip.

When you acquire a customer on December 13, the customer is "done". The customer might purchase clearance products in January and might buy again in Spring (but probably won't buy again in Spring). From there, the customer largely goes dormant until the following November/December.

When you acquire a customer on October 13, the customer is "not done". When the customer is most likely to buy for a second time (the first ten weeks after a first purchase), you present the customer with November / December ... two months of amplified response. The customer quickly becomes a 2x buyer, and from there the customer is on the path to loyalty.

One of the easiest ways to build a loyal customer base is to acquire customers in Sep/Oct then send trigger-based email campaigns to customers through December to rapidly generate a second order. Many companies do this, it's highly effective, and it's highly profitable.

So go do it!!

Working With A Great Partner

When I worked at Eddie Bauer, I was part of what was called the "Catalog Business Team" ... CBT. It was our job to execute the catalog and ecommerce marketing, merchandising, inventory, creative, and operational team plans. Not being Lemonheads, we took our mandate further. We acted like we owned the catalog/ecommerce division, for good reason of course, because if we messed up, we were fired. Best to be fired setting the tone rather than following marching orders.

I was responsible for catalog marketing and analytics. My inventory partner was the best. We made the company a ton of money by working together, partnering on what our business / sales plan would be long before anybody else paid attention. By doing that, we had a solid plan when the Executives chose to pay attention. They nibbled around the edges of the plan, but the plan was truly our plan.

The most profit the catalog/ecommerce channel ever generated happened on our watch.

We partnered on dictating the merchandise assortment we'd feature in catalog and online. Back then the catalog drove everything, today it would be quite a different story. Let's pretend that last year's October catalog had the following composition.

24 pages of mens existing merch.
24 pages of mens new merch.
36 pages of womens existing merch.
36 pages of womens new merch.
8 pages of home.
8 pages of womens tailored merch.
136 pages total.

I would determine how many pages we could profitably mail next year, based on last year's productivity. Let's say I could only author 120 pages. My partner would go back and optimize performance of each category above based on last year's productivity, yielding a plan that might look like this.

16 pages of mens existing merch.
20 pages of mens new merch.
40 pages of womens existing merch.
36 pages of womens new merch.
4 pages of home.
4 pages of womens tailored merch.
120 pages total.

From here, I'd calculate the expected productivity of the pages. Fewer pages means less sales but better productivity. I'd calculate "merchandise productivity" ... showing that my partner's optimization resulted in each page being 10% more productive. Sales would decrease, but each page was more profitable. This allowed me to circulate deeper, converting more customers.

Last Year: 3,000,000 catalogs at 136 pages, sales = $20,000,000. Demand per Thousand Pages Circulated = $49.02.
Next Year: 3,500,000 catalogs at 120 pages, sales = $22,320,000. Demand per Thousand Pages Circulated = $53.14.
Demand/Sales would be +12%, ad costs would be +3%, profit would increase by $700,000.

We replicated this for every catalog we'd mail, we'd adjust merchandise productivity and give direction to the nascent ecommerce team, our plan would fold into plans for the call center, the distribution center, for inventory buys, and it would give direction to our merchants and creative team.

There were two teams that generally argued with the plan.

The merchandising team.
The creative team.

The merchandising team did not like constraints ... constraints like "16 pages of mens existing merchandise". They wanted 32 pages. My partner and I would run the scenarios for everybody, showing how much sales/profit we'd give up adhering to their direction. To some extent this happens at every company, but disciplined companies push back when the merchants want "more".

The creative team did not like constraints. They wanted eight pages for "branding". No selling. We'd explain that was like flushing $80,000 of profit down the toilet. We'd ask the creative folks if they wanted to explain their ideas to the CEO. They didn't want to explain their ideas to the CEO.

There's nothing that destroys the profitability of an old-school catalog division like a creative director who wants to explore "branding".

But when you have a great business partner ... and the two of you work in lock-step ... you can achieve record profit.

Within a year I'd leave to work in the dot-com world (what ultimately became the 'retargeting' industry), watched my stock options go from 78 13/16 to 1, then accepted a job at Nordstrom, where I again had great partners (the merchant/creative person and the inventory person were both very good).

There are few things in business more enjoyable than working with great partners who have facts and work in lock-step with you to achieve great things ... and then great things happen.

Life of an Item

In case you are wondering why I'm talking about items / merchandise more often, this is a process that happens every 3-5 years. Business doesn't go the way we want it to, we focus on merchandise for awhile (which often fixes the problem), then we get away from merch and focus on marketing channels until marketing channels don't work great (usually caused by merchandise problems) ... and we repeat the cycle.

We're always repeating the cycle.

Sometimes our merchandise assortment gets stale. It happens to every company. It's during the "stale periods" when we dig a bit deeper.

Let's pretend you measure how much items sell by year ... let's pretend you've analyzed the dynamic for items you've offered for at least four years. You see the following.

Intro Stub Year = $50,000 per item.
First Full Year = $75,000.
Second Full Year = $38,000.
Third Full Year = $19,000.
Fourth Full Year = $9,500.

The item essentially generates $191,000 over the stub year and first four years. You don't have unlimited warehousing space, so when an item dips below, say, $15,000, you discontinue the item and find something new. This means the life of the item is the stub year plus three full years.

Once you have a framework, you can identify the items in your assortment that are at the end of their life. You can communicate with your merchants that your customers need newness.

This is the point in the discussion where somebody will raise their hand and offer me advice:

"I work in marketing, and I shouldn't have to deal with merchandise performance, that's why we have merchants. I should be allowed to focus on marketing."

Oh my little grasshopper.

Have you ever noticed that when business is off by 5% the Finance Team and the Merchant Team start asking questions about marketing? I notice it. It happens. All the time. It's happened for the thirty-six years I've been in this business. Marketers are constantly being fired for merchandising sins.