Out of an abundance of caution

With recent health scares and a surge in terrorism threats, we’ve heard many public servants justify their actions as being “out of an abundance of caution.” Of course what they really mean is “there’s virtually no chance anything bad is going to happen, but we’d all freak out a bit less if I do this. And, by the way, if anything remotely related to what we’re afraid of occurs, I’ve covered my butt.”

For many organizations outside of the government sector, making decisions “out of an abundance of caution” might as well be in their mission statement.

It’s out of an abundance of caution that we keep repeating old strategies and tactics hoping for different outcomes.

It’s out of an abundance of caution that we keep measuring and rewarding people the same way we have for years despite seismic industry shifts.

It’s out of an abundance of caution that we don’t budget for innovation.

It’s out of an abundance of caution that we keep hiring and promoting folks who look and think just the way we do.

It’s out of an abundance of caution that we’re afraid to experiment.

When government officials exercise overkill on precautionary measures at least they are trying to prevent large number of people from getting killed or injured.

When leaders in businesses or NGO’s do it, they may think they are being prudent. Yet in fact it’s an abundance of caution that is precisely the reason their organization is becoming more risky every day.

 

 

Wall Street’s simple, surefire–and mostly wrong–strategy to fix retail

Show me a struggling retailer and I’ll tell you what many Wall Street analysts will say is that company’s quickest path to new-found prosperity. Close stores. Or better yet, close a whole bunch of stores.

This was supremely evident with the frenzy that erupted on Twitter prior to JC Penney’s Analyst Day last week. Here’s a paraphrased exchange I had with one “famous”–mostly for posting photos of crappy Sears stores–Wall St. type.  Note: this is highly edited and paraphrased for brevity (and perhaps levity).

HIM: Penney’s is about to announce a bunch of store closings.

ME: I doubt it.

HIM: But they must close stores, lots and lots of stores!

ME: No they don’t. (I proceed to tell him why).

HIM: You don’t understand. They must close stores, lots and lots of stores! They need to have the same number of stores as Macy’s!

ME: That’s dumb.

HIM: You’re dumb.

The Analyst Day presentation concludes. Penney’s announces no store closings.

ME: I don’t want to say ‘I told you so’ but…

HIM: Hey, want to see my photos of really crappy Sears stores?

Now don’t get me wrong. Overall, the retail industry is over-stored. And the growth of e-commerce is causing a fundamental re-think of the number of stores a retailer requires, the size (and configuration) of these stores and how these stores need to operate. A contraction and re-working of gross retail space is inevitable.

But the knee-jerk reaction in favor of wholesale store closings is focused on the wrong problem. Struggling chains like Radio Shack and Sears aren’t in dire trouble because they have too much retail space. They are struggling because their overall value proposition isn’t working. If Radio Shack and Sears had a business model that was fundamentally sound, their needed store count overtime wouldn’t necessarily be dramatically different from what they have today. Show me a nationally branded, omni-channel retailer that is closing a lot of stores and I’ll show you one that is likely on the way to extinction.

What many on Wall Street often don’t get is that the cost of real estate for many of these established retailers is really quite low, making it easy for even chronically low productivity stores to be cash positive. And while Wall Street likes to cite the growth in e-commerce as the reason why store counts need to shrink dramatically, the reality is that for any decently integrated retailer, stores help drive the online business–and vice versa. Total customer and cross-channel economics need to be taken into account when doing a store closing analysis. When you do this analysis, along with the cash flow calculations, it turns out that closing a lot of store often makes things worse.

As for JC Penney, they are certainly far from out of the woods. They have a ton of work to do to refine and execute a merchandising and customer experience strategy that can regain share in an intensely competitive sector of the market. They are rightly focused on honing a new brand positioning and strengthening their omni-channel capabilities. My educated guess–having done this sort of analysis for other department store retailers–is that with conservative sales growth assumptions, only around 5% of Penney’s stores would be sensible candidates for near-term closure. Penney’s management is likely watching this list closely as they see how new strategies take root and they better understand the omni-channel effect.

For me, if Penney’s were to announce a large number of stores closings in the next year–say 75 or more–it wouldn’t be evidence that they are smart managers, it would be a sign that their overall strategy isn’t working.

 

 

Two kinds of big truck people

It’s hard to believe but I’ve lived in Dallas for ten years now. There are a lot of people driving big trucks around Big D.

I’ve noticed that some of these folks are keenly aware of how their choice in transportation affects other people. They don’t park in spaces that are clearly marked for “compact cars.” They take care to pull all the way into the spot so that their extra long cab isn’t sticking out into the lane or road. They’re also mindful that when they pull into a parking space to not park too close to the cars on either side.

Then there’s the other type.

Hmmm. Maybe it’s not really about the truck?

 

But first you have to believe

I’m all for market studies. And consumer research. And fact-based analysis. I’ve rarely met a 2 x 2 matrix I didn’t like.

I’m all for laying out reasonable hypotheses and putting together a sound testing plan. If I’m honest, I’m pretty solidly in the  “in God we trust, all others must bring data” camp.

But for me there’s no getting around this pesky little slice of reality. More times than not, the truly innovative, the remarkable, the profoundly game-changing, emerges not from an abundance of analysis and left-brain thinking, but from an intuitive commitment to a bold new idea.

More than a decade ago the folks at Nordstrom didn’t have an iron-clad, ROI supported business case when they made the big leap into investing behind channel integration. They believed that putting the customer at the center of what you do is ultimately going to work out.

Steve Jobs eschewed logic and conventional wisdom to pursue Apple’s strategy of “insanely great” products. He believed that leading with design and focusing on ease of use creates breakthrough innovation and customer utility.

Just about every successful entrepreneur adopts a strong and abiding belief in her product or service in the face of facts and history that suggest that, at best, they are wasting their time and money and, at worst, they are simply nuts.

On the other side–with clients and in organizations where I’ve been a leader–a lack of belief that getting closer to the customer is generally a good idea or that it’s okay to fail has resulted in an unwillingness to invest in innovation. Any meaningful action was predicated on a tight business case and, when that was lacking, it was easier to do nothing than to take a chance. All these brands are now struggling to catch up.

Obviously commitment to a belief is not, in and of itself, sufficient. Execution always matters. And there are certainly plenty of strongly held beliefs that are wildly misguided or morally reprehensible.

Yet, when I embrace the notion that just about every great idea starts with a belief not a compelling set of facts–or that often some people see things way before my logical brain can-the field of possibilities expands.

And I believe that sounds like a pretty good thing.

 

 

No customer wants to be average

It’s only when our experience is terrible that we’d settle for average treatment. But what customer truly wants to be average?

average person

Most of the time, we hope brands know us, show us they know us and show us they value us.

And to do that, companies need to break out of a one-size-fits-all paradigm.

It’s not easy. Which is why so many stores are still filled with average products for average people and our mailboxes–virtual and otherwise–are chock-a-bloc with largely irrelevant pitches and promotions.

It also feels safe, even though it’s anything but. Relying on newspaper circulars and big TV ad campaigns and “Super Saturdays” and the same promotional calendar we ran last year, may bathe us in the warm water of familiarity, but more and more mass marketing strategies are delivering less and less.

Getting closer to the customer–making the choice to treat different customers differently–needs to be more than a slogan. It means busting the silos that get in the way of a unified and seamless experience. It means investing in deeper customer insight and the tools and techniques to deliver progressively more personalized interactions. It means embracing a test and learn mentality.

Mostly, it means radical acceptance of the reality that, for most brands, the only way to grow faster than average is to eschew the average.

 

Unified. Personalized. Amplified.

More and more, the customer is in charge. More and more, your best hope for superior growth–much less staying in business–requires stealing share from the other guys.

Unless you compete primarily on price–and your cost position allows you to win the inevitable race to the bottom–I suggest focusing on three guiding principles if you want to win in an ever noisier, omni-channel world.

Unified.

The lines between shopping (and media) channels grow more blurry by the day. The growth in mobile is making the demarcation between e-commerce and brick & mortar a distinction without a difference. Increasingly, the blended channel is the only channel.

For companies that hope to thrive, this means taking a sledgehammer to silos. Customer data silos. Inventory silos. Organizational silos. This requires eliminating the friction that exists throughout the consumer’s decision and purchasing journey. It necessitates an intense focus on integrating the way the customer interacts with your brand and connecting all the dots on the back-end.

Ultimately, you may tell yourself you have many channels, but from the customer’s perspective there needs to be one brand and a completely unified experience.

Personalized.

One-size-fits-all marketing strategies are becoming less and less effective. An explosion of choices means the battle for share of attention grows ever more intense. For many brands, it’s the end of mass and the beginning of us.

Understanding us–and consistently delivering remarkably relevant experiences and offers to us–puts a premium on deep customer insight. It requires developing ways to address us uniquely and in context. It requires a commitment to experimentation.

The notion of 1to1 marketing has been with us for some time now. At last, the tools to deliver on the promise are becoming readily available at scale. More importantly, the customer expects us to know them, show them we know them and show them we value them as individuals. Ultimately, he who gets closest to the customer wins.

Amplified.

In many industries there is a pervasive sea of sameness. Similar products and services. Nearly indistinguishable (and relentless) sales and promotions. Undifferentiated branding campaigns. Look-alike designs.

It’s always been a solid strategy to have a unique selling proposition. For a long time we’ve known that word-of-mouth is a brand’s most effective advertising. But in today’s world it’s harder and harder to separate the signal from the noise. Without the remarkable–without your purple cow–at best you’ll tread water. At worst, you are out of business.

Without something meaningful and relevant to amplify about your business it’s hard to imagine why anyone will pay attention for very long.  And without a remarkable story to share, it’s hard to imagine how your customers will help amplify your message.

 

Living in an A/B world

It’s a common practice for e-commerce sites to engage in so-called “A/B testing.” A typical A/B test randomly presents a brand’s current website design against an alternative which might improve results (most often conversion rates).

A variant of this approach has been employed by direct mail practitioners for years. To improve campaign response rates a “challenger” mailing is pitted against the current best performing offer (“the champion”). Database analysis is then used to help evolve the marketing strategy.

For years, structured test and control experiments have been narrowly employed and, for the most part, the province of relatively sophisticated marketing organizations.

Yet in a world where the battle for share of attention is fierce, where relevance is increasingly hard to come by and where whoever gets closest to the customer wins, every organization, big and small, needs to embrace a test and learn mentality.

Sure, it’s desirable to have beautifully designed experiments and statistically relevant sample sizes. But don’t estimate the power of continually presenting your customers with a stream of alternatives and seeing how they react.  “Here’s A, here’s B, what do you think?” is sometimes all the protocol you need.

You don’t need Ph.D statisticians. You don’t need complex campaign management software. You don’t need expensive consultants.

What you do need is a willingness to try. And to fail. And to try again.