All about that base?

When politicians start a campaign one of the first questions they ask is how they can appeal to the base. Mainstream candidates lock into the usual suspects for rally turnout and fund-raising. The reformers struggle for voter attention and ways to tap into the key PAC’s and the Koch’s and Soros’ of the world.

Traditional brand marketers usually start here as well. We focus on more and better ways of activating existing consumers where the investment to acquire them is sunk and where we already know that they like us and buy often. It seems like a perfectly logical place to concentrate our efforts.

Except where those cohorts are aging out of maintaining their spending. Think Sears.

Except where their needs have shifted and we are no longer their brand or store of choice. Think Barnes & Noble.

Except where a new disruptive model has come along and is doing things we can’t while gobbling up our core customers’ share of wallet. Think Warby Parker and LensCrafters.

Except where we are not replenishing defectors or downward migrators with enough new profitable customers. Think JC Penney.

Good customer analysis always starts with the base. Better customer analysis is focused on a deep understanding of the leverage and limitations inherent in our core segments and yields the insight required to know where to go next and how urgent and powerful any shifts need to be.

It’s all about that base, until it isn’t.

 

 

Omni-channel: Myths, distortions and, yeah, that’s just silly

Let me be clear: I’m pretty into all things omni-channel. Get me started talking about creating a single view of the customer, silo-busting, frictionless commerce, creating a seamless experience, etc. you might want to order a pizza. We could be here for a while.

I was named the VP of Multi-channel Integration at Sears way back in 1999. I led multi-channel initiatives and enterprise customer analytics at the Neiman Marcus Group from 2004-2008. I’ve written dozens of related posts and given numerous speeches on the topic during the last few years. I’m a believer.

Yet much of what passes as inspired strategy on the part of brands extolling their new-found “omni-ness” is, well, let’s just say it ranges between being disingenuous and outright foolhardy. And then there are the legions of analysts, pundits, consultants and software providers peddling a guaranteed path to customer-centricity nirvana. Much is hype. Some is just plain dumb. Here’s an attempt to move toward more “truthiness.”

  1. You don’t really mean “omni.” “Omni-channel” means “all” or “every” and typically refers to both channels for communications and for transactions. Do you really intend to sell on cruise ships? In airports? How about door-to-door sales? Are you going to do infomercials? I didn’t think so. What you really mean is expanding your marketing and sales channels to those essential for the acquisition, growth and retention of key consumer segments–and being really good at doing it. A rush to invest in omni-channel without an actionable segmentation–and without understanding which levers are really the most important to hone in on–is a license to lose money and waste precious time.
  2. Omni-channel customers are not your best customers. Chances are it’s the other way around. And causality matters. A lot. The customers that already trust your brand are often the early adopters of new media and new places to buy. There is a dangerous false narrative that suggests that simply by becoming omni-channel a world of new sales will open to you. As Kevin Hillstrom has pointed out, many companies that have gone omni-channel have failed to improve their business. This is usually because the brand’s core is weak and merely adding more places to research and buy does not fix the underlying issues (see Sears). The best multi-channel strategies are rooted in a deep understanding of current customer behavior–and prioritize opportunities to stem defection, address new customer acquisition barriers and build add-on sales. A sensible growth strategy has clear building blocks, not a mad rush into e-commerce or rolling-out the next bright and shiny mobile or social media application.
  3. You say you want a revolution. Yet, organizational and data silos abound. Yet, analysis of most promotions still have a single channel focus. Yet, much of your marketing remains mass, rather than personalized. The underlying move to omni-channel is about customer-centricity. As long as you hold on to traditional metrics, silo-ed organizational structures and rely on fragmented data and batch, blast and hope marketing programs, not much is really changing.
  4. Confusing necessary with sufficient. To be sure, more and more customers are becoming cross-channel shoppers and, particularly with the rapid growth of mobile devices, the distinction between e-commerce and physical retail is blurring. Certain “omni” capabilities like order online, pick up in the store are becoming base expectations. It’s hard to imagine that many retailers will survive, much less thrive, without robust integration capabilities and compelling web and mobile offerings. But far too many brands think that by adding these newish features they are doing enough. They’re not. Many of these capabilities are becoming table-stakes. In other cases, they are expensive and complicated “nice to have’s.” What you need to do to keep pace is not the same as what you need to do to become differentiated and remarkable. Confuse this at your own peril.
  5. New hybrid-models are genius. The press is eating up Warby Parker’s, Bonobos and many other e-tailers move into physical locations and raving about their productivity numbers. First, this isn’t new (see Williams-Sonoma). Second, the move into actual stores had to happen. Over 3 year ago I was sitting with the CEO of one of these companies and asked him when they would think about opening stores. He answered: “we will never have physical stores.” Now he’s on CNBC singing their praises. Did I have the gift of prophecy? Of course not; the move was totally foreseeable given the known economics and limitations of pure-play e-commerce. Lastly, what would be remarkable about these hybrid-models’ sale productivity in their initial forays into the physical realm is if they did NOT do huge numbers. Bear in mind, they have opened stores in trade areas where they already have a density of customers and are in very small locations. Comparing their initial results to more mature specialty stores is silly. Comparing them to say, the top 2 or 3 bays of Neiman Marcus’ beauty counters in the Beverly Hills, Bal Harbour and Michigan Avenue stores is more apt (hint: it would be well over $3,000/sf). I am a repeat customer of the two brands I mentioned and believe they have bright futures. But let’s be careful of false positives. There is much more of this story to play out.

Omni-channel is a nice catch phrase, and there can be no question that we are witnessing an incredible transformation in how consumers shop and how brands need to do business. The status quo is not an option, but neither is a blind rush into all things “omni.”

The future of omni-channel will not be evenly distributed. The path you choose is critical.

You know what’s hard?

Customers say they want a more seamless experience across all channels and touch-points. “Sure” you say, “but it’s very expensive and complicated to implement that level of integration.”

Silo-ed data, systems, organizations and metrics are keeping your brand from being more customer-centric and relevant. “I know” is your response, “but greater centralization would be very jarring to our culture.”

In an increasingly noisy world, mass marketing and one-size-fits-all approaches fail to gain share of attention, becoming less effective by the day. You respond, “you’re right, but treating different customers differently is difficult to scale.”

Relentless price promotions and layering of discounts and reward points deteriorate profit margins, teach customers to only buy on sale and accelerate an inevitable race to the bottom. Your defense is to say “well that’s what moves the top line” and to point out how hard it is to justify full price.

In the inevitable battle between denial, defending the status quo and rationalization vs. acceptance, leaping and innovation, we tend to choose the former. And our fate is sealed.

Many of the things we avoid as too risky are, in fact, often just the opposite. The risk is in the failure to change, in the lack of passion to become intensely relevant, in being stuck in “me too” instead of choosing to become remarkably different.

What’s hard is to move where the customer is headed after the competition has already established a beach head.

What’s hard is to break through the clutter with undifferentiated products and tired messaging.

What’s hard is to acquire, grow and retain the right customers with average products for average people.

What’s hard is to catch up when you’ve fallen behind.

Mass or built for me?

All about price, or all about unique value?

Average or remarkable?

My guess is that every brand that’s gone through the work of closing stores, firing people and liquidating inventory might have a different view of what’s hard.

Not quite my tempo

Every individual has a pace at which they prefer to work. Of course it can vary given the circumstances. We can pick up the tempo in a crisis, or slow down when faced with uncertainty. But there is a rhythm that feels most natural to us and, often, folks that consistently work faster or slower than we do can frustrate us.

Organizations are similar. Some are constantly on the balls of their feet, poised for action, working briskly through issues, taking risks, experimenting. When a new opportunity arises, they are ready to pounce. They’re passionate–and in a hurry–to be part of the next big thing.

Others are at the other end of the spectrum. They sit back and observe. They are cautious, timid even, moving deliberately to scope the situation out. They’re more afraid to make a mistake than to fall behind. They constantly need to be pushed into making any meaningful change.

There are problems with going too fast, just as there can be issues with going too slow. This clip from Whiplash brilliantly illustrates that one challenge is knowing and accepting your tempo.

In case you haven’t notice, the pace of innovation is accelerating. Customer expectations are being transformed, seemingly overnight. Whole industries are being disrupted like never before.

Which is why it’s a good time for a tempo check.

And when in doubt, it’s probably better to rush, than drag.

Some customers

One of the more amusing moments of my time at Sears was when our newish CEO insisted that we stop referring to our customers as “him” and instead say “her.” This was meant to underscore the need to reinvigorate our apparel business and identify women as the most frequent decision-makers for our softline categories.

While there was merit to this strategy–and Sears testosterone-driven, male dominated culture absolutely deserved a swift kick in the, uh, pants–it ignored the complexity of Sears myriad businesses and the attendant diverse consumer segments we needed to attract, grow and retain.

Of course, Sears wasn’t alone. It’s common for business leaders and analysts to make global pronouncements about what “she wants” or how “our customer” is responding. While these statements may have an air of profundity, they’re just glib soundbites.

Today there is no everyone. There is no monolithic him or her or them.

Today the idea of being a little bit of everything to everybody is irrelevant. The era of mass is giving way to the era of us.

Today one-size-fits all strategies are running out of gas. We must treat different customers differently.

Today it’s not about “the customer” or any notion of all customers.

It’s about some customers; the right customers, carefully selected, deeply understood and served in unique and remarkable ways.

Small is the new stupid

With e-commerce continuing to grow far faster than brick & mortar sales–and already comprising more than 10% of many brands’ total revenues–the implication seems to be that retailers need far fewer stores and that future locations should be considerably smaller. After all, simple math tells us that with shrinking physical store sales, average productivity will decline, thereby making each remaining store less profitable. Moreover, the logic goes, it is much smarter to offer a wider range of products via the web owing to the efficiencies of centralized inventory and the like.

In fact, the folks on Wall Street seem to think that this is not only obvious, but it is the only way for retailers to be successful in this brave new omni-channel world. Be careful what you wish for.

While it is quite apparent that, in aggregate, most North American and Western European markets are over-stored, it is dangerous for an individual retailer to assume that aggressively shrinking their physical footprint is the pathway to success. For one thing, for most brands, physical stores help drive the web business–and vice versa. Closing stores and editing assortments too ruthlessly can drive down brand preference and market share, which ultimately is likely to reflect negatively on total profitability.

But the biggest challenge for most retailers and their brick & mortar strategy is how to remain relevant and remarkable in a blended channel world and how to create compelling reasons for customers to traffic their stores when so much of everything is readily available on the web, often at a lower price.

The quest to get small through the relentless pursuit of store productivity tends to drive brands to carry only their known best sellers. The victims of this strategy are the new, the interesting, the differentiated. If stores are reduced to selling only the safe bets–only average products for the average customer–then the internet becomes the best way to discover the remarkable. Alternatively, specialty stores may emerge to attack the market opportunity vacated by the bigger chains, who keep planing the edges of what they carry to “optimize the box”.

Either way, a get smaller strategy may only serve to make a brand’s brick & mortar stores all that much less interesting and accelerate an already precarious position into a downward spiral.

Surely, for some retailers, a rationalization of their store portfolio is overdue and a radical re-think of their physical store model is an urgent and important need. Sadly, for others, getting small will only turn out to be incredibly stupid.

 

Oh, they’re not a competitor

Shortly after I became the head of strategy and multi-channel marketing at The Neiman Marcus Group I was asked to lead a strategic planning session for our senior executives. One of the exercises I suggested was a deep dive on our opportunities and vulnerabilities against each of our key competitors. As I reviewed my overall plan one of the top leaders responded, “I like the overall approach, but you need to take Nordstrom off your list. They’re not a competitor.”

Having come to Neiman’s after 12 years at Sears–which I affectionately call my journey from the outhouse to the penthouse–I will admit that my experience in the nuances of the luxury industry was pretty lacking at that point. I certainly understood that a substantial percentage of our customers were fabulously wealthy and preferred brands that you simply could not get at Nordstrom. But I had already learned that many of our shoppers were much less affluent and that we sold quite a few brands that overlapped. Nevertheless, being the new guy–and not especially confident in my hypotheses–I acquiesced. We didn’t talk about Nordstrom.

About a year later my team initiated an in-depth analysis of customer spending and activity trends. Ultimately what we found was pretty disturbing. While our very top spending group was growing in sales and margin rate, customers that represented about 2/3 of our sales had weakening stats.

As it turned out, virtually all our sales growth during the preceding 5 years was driven by raising our average unit prices and the growth of our e-commerce business. After much hemming and hawing about the value (and cost) of doing consumer research, we finally got approval to do a series of studies to understand the underlying drivers of these outcomes. We learned a lot, most of which Neiman’s failed to act upon until the financial crisis hit. But the overwhelming conclusion was that when we lost customers (or a portion of a customer’s spending) the majority of that leakage was to Nordstrom.

Oops.

The point of this story is not to point out the limitations of the Neiman’s culture at that time, nor the power of my intuition. The fact is you don’t have to do much digging to find similar examples of mis-reading the consumer and failing to respond adequately playing out, over and over again, in any and all parts of industry.

Sometimes competition is rather direct even when there is a major value proposition innovation. Flash-sale sites clearly competed for a certain segment of the fashion business. Digital books and music obviously challenged the underlying business models of Borders and Blockbuster.

Sometimes competition might be less direct and its game-changing impact may be harder to glean at first. I’m not sure what the brand management teams at Folger’s and Maxwell House were thinking during the initial growth of Starbucks, but it’s now clear that there was a dramatic consumer preference shift that those brands failed to address–and a huge value creation opportunity that they didn’t participate in.

Even harder to see is when consumers have a more macro-substitution effect. For example, with some consumer segments, we’ve seen a broad and long-term trend to greater interest in personal experiences. This shift has, in many cases, supplanted spending on certain physical goods.

As in most elements of good strategy development the keys are pretty simple:

  • Clearly articulate a data-supported and trackable customer segmentation scheme
  • Stay current on the wants, needs and long-term value of each of those segments
  • Monitor direct competitors and emerging competitors for EACH segment
  • Model impact scenarios for nascent opportunities and threats
  • Develop potential responses and testing plans under each of those scenarios
  • When the time is right test those responses
  • Assume the time is right much earlier than seems comfortable
  • Be prepared to compete with yourself.

And one more thing. If someone tells you “Oh, they’re not a competitor” you might not want to take their word on it.

In God we trust, all others must bring data.