What’s the frequency Kenneth?

Every retailer can tell you about same-store sales. Most can readily quote their online conversion rates. Some can even dissect the composition of physical store visits (conversion rate, average transaction value, # of items per transaction and so forth). And, more and more, we’re hearing about metrics such as the growing percentage of digital engagement done on a mobile device. Much of this can be pretty useful.

Yet, we don’t hear much about frequency. When we do, it’s rarely broken down by key customer segments. That’s a mistake. And, all too often, a big one.

In my experience, one of the earliest signs of trouble is a decline in frequency–both in terms of shopping behavior and willingness to recommend. Low frequency, even when it’s comparatively stable, can be a sign of trouble as well. Conversely, growing frequency among core customer cohorts suggests strong forward momentum.

One of the reasons I knew the flash-sales category would hit the wall was the preponderance of low-frequency customers across the customer base of several well-known (and, as it turns out, ridiculously over-funded) brands. This fact, combined with declining frequency among the highest spending segments, spelled impending doom.

Similarly, it was increasingly obvious that a certain luxury department store was headed for trouble when frequency across all but one of the core customer segments we tracked was ebbing. Moreover, the remaining (and most profitable) segment’s revenue was only positive because of significant increases in average unit selling price, not through adding more customers or greater shopping frequency.

Understanding frequency is hardly the be-all and end-all of customer analysis. Yet you don’t have to be a Ph.D in statistics to dissect the data, nor do you need to be some sort of analytics savant to draw the requisite conclusions. You merely need to be willing to ask the question and dig deep into the root causes.

Oh, and it’s important that you be willing to act on the implications.

The wrong side of scarcity

The formula for success in retail–in being intensely relevant and remarkable for customers and investors alike–is ultimately rooted in scarcity.

Scarcity for a highly desired good or service amplifies demand and enables a brand to command a premium price. Conversely, abundance undermines those abilities.

So, let’s be honest, in your market sector are any of these things truly scarce?

  • Frequent % off promotional events
  • TV ads that focus on the above
  • A cash back rewards programs
  • Free shipping offers
  • Ability for consumers to gather product and price information
  • A selection of major national brands
  • Sunday newspaper circulars
  • A professional looking website
  • Convenient locations
  • Friendly sales associates.

How about these?

In a slow growth, ever noisier, consumer-in-charge world, it’s hard to see how doubling down on the already abundant is likely to get any brand very far. Yet that is where most our focus, energy and resources seem to be pointed.

Unfortunately what passes for strategy at a lot of companies is the notion of being better at being common. Good luck with that.

The easy prey

In most endeavors it’s a good idea to start with the easiest sale. Get the quick win. Gain some traction. Build a base. Rinse and repeat.

Organizations with any chance of staying around all have easy prey. The easy prey need the least convincing. The easy prey likes just about everything we do. They buy more often and more broadly. They’re typically the least price sensitive and provide the strongest word of mouth.

The tendency in established organizations is to rely on the easy prey too much, to go back to the well too many times. When I was at Neiman Marcus, our easy prey were the super wealthy who were intensely interested in the latest fashion. We raised our prices 8-10% per year and they kept buying. They loved the ridiculously expensive and exotic redemption opportunities in our InCircle Rewards program. We offered ever more exclusive merchandise and events and they cried “more, more, more!”

Unfortunately, the majority of our profits came from folks that weren’t in this elite segment, and our over-reliance on the best of the best started to chase them away (you’re welcome Nordstrom). When the recession came we were hit unnecessarily and devastatingly hard by the lack of balance in our customer portfolio.

For newer, rapidly growing brands, the typical mistake is to optimistically project that early success will readily scale. Many hot e-commerce brands are classic examples. These start-ups hyper-focus on a particular demographic and product-niche and use the advantages of the internet to quickly and cost effectively acquire an initial batch of customers. The metrics for the easy prey are impressive and venture capital dollars follow. Alas, the dynamics that worked so well for the easy prey become quite different (and challenging) as the business scales.

The next tranche of customers don’t get the value proposition as readily as the easy prey. They are harder to convert, requiring more expensive marketing and more costly incentives. Some may like the offering in concept, but want to see, touch and try on the product to be certain they wish to buy it. Acquisition costs go up and physical retail stores are often needed to scale the business to the next level. This isn’t necessarily a bad thing, but it is a big change and fundamentally alters the nature of how the business operates and makes money.

All brands of any size are composed of multiple customer segments, each with somewhat different needs, values, emotions and behaviors. Some are easier to acquire, grow and retain than others. Some aren’t worth the effort. A well crafted growth strategy is rooted in a solid understanding of each segment and employs a targeted and balanced portfolio approach to maximizing customer value. It necessarily involves moving beyond the easy sale and moving outside of our comfort zone.

I suppose it’s human nature to choose the path of least resistance. Ironically, it’s when we get stuck in what is easy that suddenly things get very, very hard.

At the intersection of choice and friction

As retail consumers, let’s stop and think about the choices we had a decade or so ago.

With few exceptions, almost all products were purchased from a physical store during limited store hours. For the most part, we selected from what was in-stock; custom orders were generally time-consuming and expensive. If we wanted to shop for alternatives we had to get in our car, walk to another store in the mall or, if we lived in a small town, drive many miles to explore the competition. It was pretty much the same drill if we wanted to check prices. Product reviews came from neighbors and friends, if we were lucky, or from sales people, if we weren’t.

Until fairly recently, many of our shopping experiences were laden with friction, primarily driven by scarcity of choice. Sometimes we had decent alternatives. Many times we did not. Often we had to settle for good enough.

Today, if anything, we are overwhelmed by choices. At a macro-level, consumers are experiencing less and less friction all the time as selection expands, prices decline, access becomes easier and information is abundant. Technology is enabling retailers to root out the so-called pain points in the customer experience. Fierce competition is unlocking more and more value for consumers.

But for many retail brands, this can be quite problematic. Mediocrity in the customer experience is now laid bare. Uncompetitive pricing, stale merchandise, out-of-stocks, long call-center hold times and the like, have gone from mere customer annoyances to the reasons customers are bailing in droves to the competition.

It amazes me that so few retailers truly understand what drives customer loyalty and how they stack up against the evolving competition.

It stuns me that so many brands remain clueless about the sources of friction in the shopping experience, particularly among their most profitable customers.

Blather on all you want about omni-channel this and omni-channel that. But if you don’t really understand what’s going on for your customers at the intersection of choice and friction, chances are you’re wasting your time.

Dating the wrong customers 

In most industries, the smart marketer wants to cultivate long-term, enduring relationships with her customers. For most of us, the end-game, best case scenario is to create customers for life–or for at least a very long time.

Imagine if, however, in our personal lives, we had a strong desire to get married, but we only went out with people who made it clear that they had no interest in a long-term relationship.

Imagine if the person we were romantically captivated by insisted that we bribe them each time just to go grab coffee, see a movie or have dinner with us.

Imagine if their decision to go on a date with us any given Saturday night was determined by how well our offer stacked up against the competing bribes they were getting from other suitors.

Now faced with this intensely competitive and highly promotional dating market you might determine that you should go on a lot more dates to increase the odds of finding just the right guy or gal. Or you could choose to make your bribes larger. Or you could decide that, in addition to your bribes increasing, you’d add some perks or value-added features to make your dating game more unique and competitive.

By now, hopefully it’s pretty obvious that the best answer is not to endlessly spin to win the hearts of a person who fundamentally does not meet our needs, nor is there any gain in fighting a battle we can never win.

So why is it so hard to see that, all too often, we are dating the wrong customers?

Knowledge is not a differentiator

Knowledge isn’t automatically power either.

Today, all one needs is access to the internet to be able to “know” almost anything, practically instantaneously.

Many companies have all sorts of data, and whether they label it “Big” or not, it’s completely meaningless without useful action.

Many people are extremely well-educated, but they leave the world without having made a mark.

I know, as just one small example, that my holding on to a resentment is not only pointless–at least until Elon Musk invents a time machine–it also only serves to make me miserable. Do I act on that knowledge consistently? Hardly.

Knowledge is becoming closer to a commodity literally every single day. Chances are if you don’t know something it’s because you don’t want to–consciously or otherwise.

Companies confuse data with insight all the time.

Many non-profits are particularly good at exposing the world to a raft of research and “findings” apparently content that, once society is made aware of something, lasting change is just a simple step away.

Plenty of organizations, big and small, secular or otherwise, try to win on the notion that they know something others don’t and rest safely on the strength of their set of facts and convictions. Individuals are hardly immune from this way of thinking. I’m most certainly not. #self-righteous.

To what end?

Awareness is critical, but it only creates an opening.

Knowledge is important, but it’s just the start.

Acceptance of reality merely forms the foundation for progress.

He who dies with the most facts does not win.

The difference that matters–the shift–is revealed in our actions: the leap, the willingness to be vulnerable, the stepping down from the stands into the arena, the abandonment of creeds in favor of deeds.

The difference isn’t in the knowing, it’s in the doing.

Why we don’t know why

If you are anything like me, whether it’s in your personal or professional life, you have a list of goals you seek to achieve.

And if you are anything like me, you don’t always achieve them. Which begs the question: why?

Sometimes the answer is painfully obvious. Other times it takes more work. Yet, I am struck by how often, whether it’s my own stuff, interactions with friends and colleagues or issues my clients are struggling with, the answer is “I don’t know.”

Why are we losing share to the competition? I don’t know.

Why isn’t our social media strategy working? I don’t know.

Why am I working harder and harder and getting less accomplished? I don’t know.

Why does an innocuous statement by my partner, make me instantly defensive? I don’t know.

It seems to me there are a few reasons why we don’t why.

Sometimes, no matter how hard we dig, it’s simply unknowable. I’d put the “God” type questions in this bucket.

Sometimes, we haven’t dug deeply enough. If it’s important, if we make it a priority, more work–or perhaps a radically different approach–stands a pretty good chance of unlocking the root cause.

Sometimes, if we’re brutally honest with ourselves, we don’t want to know the answer. We’re afraid of being confronted with the harsh reality of our situation. We fear being seen for who we really are or having to acknowledge that we aren’t a victim. Accepting accountability and seeing that the only road is difficult and scary is often to great a burden to bear, much less wake up to and own.

Of course it’s pretty easy to go through life blissfully ignorant, to avoid an honest look in the mirror.

Until it isn’t.