The customer trapeze

Study attempted strategic transformations or turnarounds and you’ll quickly discover that many are rooted in the hopeful–and typically dramatic–shifting of a brand’s customer base.

One frequent theme is the desire to migrate from an older customer to a younger one. The “this is not your father’s Oldsmobile” campaign epitomizes this path.

Another is the desire to “trade-up” the customer mix. The push for a much greater proportion of affluent and/or more fashion forward customers typifies this desired aspirational shift. Sears and a litany of other brands have tried to push this large rock up a huge hill for years.

Perhaps the brand wishes for a less promotionally oriented customer base (JC Penney, plus many others) or to shift from being known for more basic items to be seen as a “solutions-provider” (think Radio Shack).

History reveals that very few established brands are able to successfully execute a dramatic re-configuration of their customer base. Once you get beyond Cadillac and IBM, the list grows short indeed. It’s not hard to understand why.

The more a brand is known for one set of things, the harder it is to persuade consumers to believe something fundamentally new and different. To the extent a company starts to aggressively move away from what made it successful with its legacy segment to cultivate a new group, it risks alienating its historical core. One need look no further than Ron Johnson’s disastrous reign at Penney’s to see how ugly things can get when this sort of strategy is pushed too aggressively and without sufficient customer insight.

Like any trapeze act, the customer trapeze is all about speed, coordination and timing.

Many struggling brands will never survive, much less thrive, without letting go of major elements of their past. Let go at the wrong time, be it too late or too early, and the fall is disastrous.

We may not be right for you

Bessemer Trust, a leading private wealth management firm, ran an ad in today’s Wall Street Journal with the headline “we may not be right for you.”

In the copy below, they briefly state that they are not trying to be the biggest but, for the right type of customer, they strive to be the best.

Think about how few brands have the confidence to not only make such a statement, but to act on it.

Think about how few brands even have a clear understanding of who their core customers really are, what their profitability is and how to best engender their loyalty.

Without a clear customer-centric growth strategy and the willingness to treat different customers differently, all too often brands find themselves supremely unfocused in a desperate and often frantic quest for top-line growth.

Embracing the notion that “we may not be right for you” seems risky when, for many, it is precisely what they need.

Who’s it for? What’s it for?

When you’ve been in business as long as I have–and believe me it’s really not the years, it’s the mileage–it’s fair to say that I’ve reviewed a lot of business plans. Some very compelling, most not so much.

The less than great ones are typically chock full of details on every imaginable component of the product or service. They are packaged in a beautiful PowerPoint deck. And there is a spreadsheet laying out the explosive growth that’s inevitably just around the corner.

It often looks very impressive. But, sadly, it is also completely irrelevant if there are not clear and crisp answers to two core questions: Who’s it for? What’s it for?

It’s simply not good enough to describe your target customer group by high level demographics (or as Seth says anyone who pays us money). Can you describe them in distinct, addressable segments? What are your plans to treat different customers differently? Why will they substitute your product for their current preferred solution? What will it take for them to become regular customers and, ideally, brand advocates in the face of current and emergent competition?

Once you’ve painted the picture on the customers you’ve chosen, now tell me exactly what your product and service does for them. Not features and benefits, but solutions, outcomes. Can you articulate what current customer compromise you are alleviating? I want to hear about the hole, not the drill.

Whether we like it or not, in more cases than not, persuading potential customers to shift their attitudes and behaviors–for reasons other than price–is harder than we’d like to believe. Before the explosion of digital commerce, when the cost of procuring information was typically high and consumers’ choices were often limited by how far they were willing to drive, an entrepreneur could often get away with poorly defined customer selection and a less than remarkable value proposition. Today, it’s a huge challenge to even get noticed, much less drive trial and frequent, profitable repeat business.

So before you gather aggregate market statistics and craft your hockey stick financial projections and fiddle with the font size of your pitch deck, get hyper-focused on the two key questions that ultimately separate the winners from the losers.

The confidence of brands

There is plenty to ponder when the subject is branding. Lots of agencies, consultants, marketing gurus and academics have frameworks and models for assessing a brand’s strength. Varying definitions abound. I like Seth‘s:

A brand is the set of expectations, memories, stories and relationships that, taken together, account for a consumer’s decision to choose one product or service over another. If the consumer (whether it’s a business, a buyer, a voter or a donor) doesn’t pay a premium, make a selection or spread the word, then no brand value exists for that consumer. 

Therefore a brand is a promise, a pledge of trust. Without the buyer’s willingness to believe in the delivery of that promise, the brand is irrelevant. So confidence in the minds of consumers is essential.

But so is confidence in the mind of the marketer.

Confident brands lead from a position of authority. They take risks. They don’t need to over-explain or hard-sell their customers. Options are abundant. This is a brand playing offense.

We can easily sense the brand that lacks confidence, that sadly has lost–or never had–its mojo.

Unconfident brands are defensive. They cast too wide a net for customers. They compete too heavily on price. Their advertising lacks focus and nuance and instead is characterized by shouting and bludgeoning. They default to one size fits all marketing.

The real tragedy is that what flailing brands need the most is precisely what they lack. Without the confidence to face the realities of their situation and to take the bold actions to get on a path to prosperity, their ultimate fate is sealed.

JC Penney: The way, way back (Part 1: The challenge)

Yesterday JC Penney reported its first quarterly same store sales increase in more than 2 years.

Given the free fall the company found itself in during the Ron Johnson era, this news provides a measure of hope. After all, there can be no ascent from a dive without passing through stabilization. And even though the gain was paltry–about 2%–it came during a period of consumer ennui, crappy weather and intense sales promotion throughout the industry. Later this month, when Penney’s reports quarterly earnings, we’ll get a clearer picture of the toll aggressive discounting took on margins.

Unlike some doom-sayers on Wall Street, I am cautiously optimistic about Penney’s near-term. Product assortments are improving, which bodes well for continued top-line growth. While the company still has a bit more work to clear all of Johnson’s merchandise debacles, I expect improving margins as the company better matches inventory to consumer demand. A return to more typical promotional marketing has Penney’s back in the competitive mix. E-commerce improvements are starting to make meaningful contributions. 

But of course better is not the same as good.

First of all, we should not lose sight of the fact that even before Johnson’s messianic arrival, JCP was struggling. Despite many attempts to re-invent itself, they remained a middling performer at best, stuck in neutral, in a moderate department store sector that continues to shrink. A transformation was, in fact, needed. Just not the one Johnson and team inflicted upon them.

Second, during the past 2 years Penney’s has lost roughly 1/3 of its sales. That means they need to increase revenue by well over 40% just to get back to where they were in the pre-Johnson, more than a bit mediocre, days.

Retail is still largely a high fixed cost business, and even with some additional pruning in real estate and a shift to more e-commerce, there is simply no way to earn an adequate return without dramatically improved brick and mortar sales productivity. And of course they must accomplish this in an environment of lackluster consumer spending and intense battles for market share. Though, Sears’ slow slide into oblivion should be the gift that keeps on giving.

To be sure, there is much of the proverbial low hanging fruit to be picked. Basics of execution were lost during the past two years. The Johnson merchandise and marketing strategy showed a poisonous contempt for Penney’s core customer. New product concepts were rolled out that were dead on arrival, creating many pockets of incredibly low sales productivity (I’m looking at you Bodum!). The increasingly critical digital channel was left  twisting in the wind. 

Addressing many of these glaring gaps should come fairly easily and quickly. Crafting a winning, long-term strategy is a totally different challenge.

Coming in Part 2: The action plan

Untethered

In the first decade of e-commerce’s ascension, with rare exception, the consumer was sitting in their home or office using a desktop computer to do their online shopping. It was a completely virtual experience where the advantages were clear: 24/7 access, wider selection, often lower pricing and so on. So were the disadvantages: inability to try on the product, no instant gratification, no sales help, etc.

Even as e-commerce began to chip away at brick & mortar stores’ dominance, the physical retail experience stayed basically the same. To reap the advantages of in-store shopping you had to travel to the store. Once there, if you wanted product information you had to track down a sales associate and hope that he or she knew what they were talking about. What you could buy had to be in-stock in that particular location. And when you wanted to buy something, you went to a sales register at the front of the store or located in a merchandise department.

With the explosion in mobile devices and smart phones the consumer decision journey is rapidly becoming untethered. Previously a digital shopping experience by definition meant you weren’t in (or close to) a store. But, more and more, what we once counted as an e-commerce shopping trip or sale, versus one made in a physical store, is a distinction without a difference. It’s now a bricks and mobile world.

Increasingly, store sales associates are untethered from their POS registers, lending them the ability to work with a consumer at the real point of sale and arming them with the digital tools that can meaningfully enhance the customer experience.

Today’s omni-channel leaders are keenly aware of how the un-tethering of retail is profoundly altering the consumer and competitive landscape.

For others–the relentless defenders of the status quo–it’s their thinking and willingness to act decisively that needs to be untethered. Hopefully that occurs before their business model becomes unhinged.

 

 

Living la vida local

Until the end of the 19th century virtually all retail was local.

There was no such thing as a chain store or a catalog merchant. Most raw materials were locally or regionally sourced. The local shopkeeper predominated.

For centuries, the typical merchant specialized in a particular area of expertise–butcher, baker, cobbler and so on. He knew most customers by name and understood what they liked. With the ability to get instant feedback on his offering he could readily curate his offering to local tastes. He didn’t have to learn 1-to-1 marketing. It was his lifeblood.

In the 1880′s, Richard Sears and Aaron Montgomery Ward launched their catalog businesses, and in the decades that followed, consumers began to have greatly expanded choices. As the 20th century unfolded, the transportation infra-structure improved dramatically, creating greater opportunities for sourcing product from around the globe. Multi-unit retailers proliferated and eventually the bulk of retail shifted to regional malls, mass discount stores and dozens of national “big box” retailers and specialty chains.

In the last 15 years, the advent of e-commerce, along with incredibly efficient direct to consumer supply chains, have made it possible for the individual consumer to have virtually infinite choices available to them. The local shopkeeper model has become largely extinct.

Now it’s come full circle. Retail, like politics, has always been local. The winners have always been those that bring the most remarkable and relevant solutions to individual consumers. But over time what was possible shifted. Those that failed to keep pace lost out.

Today the retail world is becoming increasingly bifurcated. A few players are winning by riding the long tail and by offering low prices and efficient shopping. For everyone else, the world is a lot more complicated. Right now the challenge is to differentiate your brand in a sea of sameness. Right now the goal is to curate your offering–or make it incredibly easy for the customer to do it for herself–to a specific set of consumer needs and wants. Right now your mission is to know your customer better than the competition and to leverage that insight to craft more unique and personalized solutions.

Sounds familiar right?

Advances in technology make it possible for your brand to provide value in much the way the shopkeepers of yesterday did. To know me, to understand my individual preferences and to use that information to tailor your offering to my specific requirements is the formula for winning.

You can keep chasing price and remain wed to mass approaches to marketing, customer service and operations. And you can hope to beat Amazon and Walmart at their own game. Let me know how that works out. Or…

Or you can commit to treating different customers differently and invest in a strategy steeped in localization and personalization.

The choices are increasingly clear. The commitment to one path or the other is becoming more urgent. You need to choose.

Ultimately it’s death in the middle.

 

 

 

 

No managers were hurt in the making of this strategy

A number of years ago my team crafted a proposal to re-organize our company around the customer.

It was apparent that more and more consumers were using multiple touch-points to engage with our brands. Our analytics team had calculated that 50% of our customer base had made a purchase from both our physical and e-commerce channels during the past year. Researching online before shopping in our stores was increasing dramatically. And one of our key competitors had embraced “channel-agnosticity”, was investing heavily in cross-channel integration and starting to grab market share.

We, on the other hand, were locked in silos. We had entirely distinct and decentralized organizations for our online and brick & mortar operations. Separate channel inventory could not be accessed on behalf of the customer. Metrics and incentives were channel specific. Despite “knowing” that a high percentage of our best customers received direct marketing campaigns from both of our separately managed channels, virtually no effort was made to coordinate these consumer communications. In fact, our opt-out rates were greatest among our highest spending customers. To us, the call to action was clear.

So we pitched our CEO on a plan to address these issues. It was a dramatic shift to be sure, with a fair amount of complexity and numerous assumptions about how we would ultimately justify the investment.

Yet, what my boss focused on was how several key executives would be impacted and how they would react if we were to embrace the proposed customer-centric transformation.

“John is going to be angry. Sally would have a lot fewer people reporting to her. How can we move Paul over here, Linda (his boss) will be upset. I promised Tim a CEO title.” And so on.

Needless to say, none of the most critical recommendations were implemented. Eventually, under a new CEO–and mounting evidence of how the company was falling behind–most of the proposed changes were made. By that time I–and every single one of the personalities at issue–had left the company. And market share had continued to erode.

I don’t mean to be callous about the individual concerns and needs of folks working in companies. But the reality is that consumer needs have evolved radically and traditional approaches simply don’t work. The evolution (or revolution) in your strategy is certain to shatter the status quo and be painful for some (or all) of your managers and executives.

Yes, it’s inevitably going to hurt some of your people. But not going through the pain is ultimately certain to hurt your customers–and your results.

It’s a stark choice. But the choice seems clear.

 

 

 

 

Omni-channel: Fix it in the mix

I’m just back from the intimate little affair known as the National Retail Federation’s “Big Show.” Of course if you’ve ever been, you know that it is, in fact, far from intimate. The multi-day extravaganza in New York’s Javits–from the Hebrew, meaning “non-existent mobile connectivity”–Center features thousands of attendees, hundreds of exhibitors and buzz-words aplenty.

In many sessions, barely a minute could go by without a speaker uttering “omni-channel” this or “omni-channel” that. Yet the attentive listener would quickly conclude that not only was there often more heat emitted than light shed, there was also a fair amount of out-and-out hooey and semantic mumbo-jumbo.

Let’s get a few things straight, shall we?

First, omni-channel is no different from what many leading retailers have been investing in for years: the vision of a customer-centric, anytime, anywhere, anyway, seamless experience across channels and touch-points. Call it “channel-agnosticity”, “frictionless commerce” or “multi-channel integration”, it’s all more or less the same. Customers don’t care what you call it, they care what you do with it.

Second, the point is not to simply add more channels. The “omni” part of “omni-channel” is about being intensely relevant in all the channels your customers care about and making the experience frictionless for her as goes through her decision journey. I heard one executive say they were the best omni-channel retailer because they sold in more channels than anyone else. That’s very misguided thinking.

Third, participating in, or being pretty good within, all the channels that your customers employ is not enough, nor is having a decent experience across all channels for your average customer.

Winning in omni-channel is all about the mix. The mix of customers you serve. The mix of products and services you offer. The mix of media employed to drive engagement and loyalty. The mix of channels where consumers can learn and transact. And so on.

To be sure, there are some foundational ingredients of winning in this evolving omni-channel world. Possessing a single view of the customer and the ability to uniquely identify, track and reach individual customers regardless of where and how they engage with you is critical. Without breaking down organizational silos (and the culture, incentives and metrics associated with them) you won’t get very far on your transformation. Making your entire brand’s inventory available to the customer at all points of sale (supported by easy, channel of choice returns) is rapidly becoming the price of entry.

Yet without the capabilities and commitment to treat different customer differently, your omni-channel strategy risks being an also-ran.

Many of the NRF’s Big Show presenters and vendors were pushing ingredients. Ingredients are essential, as is a good recipe. But the customer wants the finished product. And it’s the mix, that perfect blend, that really makes something special.

Fix it in the mix.

Maybe it’s a fact

“If you have the same problem for a long time, maybe it’s not a problem.  Maybe it’s a fact.”

-Yitzhak Rabin

“Facts are simple and facts are straight
Facts are lazy and facts are late
Facts all come with points of view
Facts don’t do what I want them to”

- Talking Heads, “Cross-eyed and Painless”

I’d wager that the vast majority of business failures are rooted in a profound denial of reality.  The demise or persistent flailing of Borders, Blockbuster, Sears–and many other current or future residents of the retail graveyard–stems largely from a lack of awareness and acceptance of the unassailable facts of shifting consumer behavior.

It’s far too easy to dismiss an industry upstart or new technology as a fad or hype, until it’s too late.  It’s common to worry more about protecting your turf rather than embracing a product or service for yourself that you fear “cannabilizes” your core.

Of course this is commonplace in interpersonal relations and communications as well.  I know I can be quick to defend my behavior when I know deep down I’m the one who made the mistake, I’m the one who needs to change.

The next time someone challenges your business or your point of view, maybe your first reaction shouldn’t be to dismiss or defend.

Facts may not do what you want them to.  But that doesn’t make them untrue.  Ignore them at your own peril.