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.

 

 

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.

The discount ring

I’m amazed that Wall Street analysts are “surprised” that as hot brands get bigger (think Michael Kors, kate spade), their level of discounting increases. Apparently they were all sleeping during their first year economics course when supply and demand was covered.

Target_market_bullseye

 

 

 

 

 

Whether it’s Walmart or Chanel, at the center of any brand’s customer bullseye will be customers who don’t need a discount (or any extra incentive) to buy. This is what I referred to in my recent obsessive core post. As we move out in the rings, away from the center, we encounter customer segments that are less and less intrinsically loyal and thus more in need of extra incentives to buy.

Since Walmart’s value proposition is largely about price–whereas Chanel’s rests on a high percentage of full-price selling–the composition and dynamics of these various customer segment rings will obviously be quite different. But the fact remains that as a brand grows by casting a wider net for customers it will, at some point, develop a discount ring.

As the name implies, customers in the discount ring don’t buy unless they get a deal. In fact, most brands will have multiple discount rings. There will be a ring that needs only minor or modest incentives to pull the trigger. Others only come off the sidelines when prices hit a much deeper level of markdown (or some other incentive).

Unless we are examining a brand that has decided strategically to shun price discounting completely–or assessing certain companies early in their life-cycle–the existence (and relative growth) of a discount ring should surprise no decent analyst.

The real question for anyone trying to understand the validity of a brand’s long-term customer growth strategy is whether the company has a firm grasp of the dynamics within each of these rings and is intelligently balancing the portfolio of these different customer segments.

Coach is a brand that in recent years lost its grip on its customer portfolio and pushed too far on the discount ring. They have paid a steep price and are now trying to rebalance.

In Michael Kors’ case, there are only so many customers willing to pay at or close to full-price for their core offering. Sustaining growth means appealing to more customers. And that means they will need to become more reliant on more price sensitive customers.

Ultimately the point at which the discount ring becomes meaningful is mostly a matter of brand maturity and math. If you get shocked by that it just means you’re not paying attention.

The starting point–the pivotal matter of strategy and intelligent customer development–is to build a level of deep insight about each relevant customer segment. Then we must become intentional about how each plays into the brand’s long-term growth. Having a discount ring emerge is not automatically a matter of good or bad. How it plays out over time is a strategic choice.

Choose wisely.

Let’s get physical

Amidst all the breathless pronouncements about the inexorable decline of brick and mortar retail emerges an interesting phenomenon: some of the fastest growing and most exciting internet-only brands are opening stores.

Recently, Bonobos raised $55MM largely to accelerate its foray into “Guideshops.” Other e-commerce innovators such as Warby Parker, Trunk Club, Nasty Gal and Bauble Bar are all expanding into physical store fronts. Expect more announcements soon, not only from earlier stage companies, but from larger direct-to-consumer brands as well. This seemingly counter-intuitive trend reflects a few realities.

First, most of these venture capital funded darlings have thrived in their first few years by exploiting a highly specific customer niche and leveraging the heck out of the advantages of a direct-to-consumer model. Alas, the number of customers who are willing to buy product sight unseen, without working directly with a sales person and lacking the instant gratification that physical stores provide, is comparatively small when it comes to product categories where fit, material quality and fabrication are important. For these brands to continue to grow–and have a chance for material profitability–physical locations aren’t a nice-to-do, they are a necessity.

Second, brick and mortar retail is different, not dead. In most product categories, for many, many years to come, the overwhelming majority of sales and profits will continue to come from, or be influenced directly by, physical locations. Regardless of whether a brand started as an actual store or as a virtual entity, the ones that will ultimately win will offer a tightly integrated experience across their various channels and touch-points. They will eschew traditional mass, one-size fits all strategies and embrace more personalized missions. There remains plenty of business to be done in brick and mortar locations–if you have something remarkable and meaningfully customer relevant.

Finally, when we think about the market or the customer we inevitably get it wrong. Global pronouncements about industry dynamics or the “typical” consumer are rarely particularly illuminating and almost never sufficiently actionable. The brands that are winning–the ones that are stealing share from you–go beyond the averages and the mega-trends. They understand how to apply technology to create frictionless commerce. They delve into data and apply customer insights that inform stronger acquisition, growth and retention tactics. They are committed to experimentation. They treat different customers differently. And on and on. None of this is fundamentally rooted in how a brand started or whether trends tend to favor its success.

Of course it’s far from certain that these previously web-only brands will successfully transition to an omni-channel world. Some will stumble mightily. A few will fail completely. Others will see their growth stall at only a handful of profitable locations.

The one thing for certain is that for quite a lot of customers, the benefits of physical shopping are here to stay. For traditional players the rush to close and down-size their store base may have some merit. But it’s equally likely the problem isn’t just the real estate portfolio.

 

A lot of oysters, but no pearls

It’s worth remembering that “big data” in and of itself does not automatically lead to useful nuggets of actionable insight.

It’s worth remembering that having a lot of customers doesn’t mean you have a core group of profitable and loyal ones willing to advocate for your brand.

It’s worth remembering that generating lots of ideas doesn’t guarantee a good one will magically emerge.

It’s worth remembering that you can be plenty busy and not necessarily be working on the few things that truly make a difference.

Sure, sometimes you need a lot of oysters to be certain you will find a pearl. And maybe that kissing a lot of frogs thing helps some folks find their prince.

Most of the time, however, if we constantly remind ourselves that our goal is more pearls not more oysters, we can save ourselves a lot of time, energy and distraction.

 

HT to Counting Crows for the title inspiration.

Your customers don’t care

Your customers don’t care….

…that your e-commerce operation and physical stores division are run separately…

…or that your systems don’t “talk” to each other…

…or that you say “your call is very important to us” over and over again.

Your customers care that every aspect of the shopping experience–and that includes returns–is as close to frictionless as possible.

They care that they don’t have to re-start at the beginning every time they interact with someone from your organization–and that they don’t get a different answer based upon who they happen to speak with.

They care that if say “your call is very important to us” that you hire enough people to answer the phone quickly and that the person on the other line can actually resolve their problem the first time, every time.

Customer-centricity is rooted in an outside-in perspective and starts where the customer is, not where your brand happens to be.

Customer-centricity means a commitment to really knowing what customers want, showing that you know them and showing them that you truly value them. Through actions, not words.

When your customers stop caring about what you say, or they see a disconnect between what you say and what you do, it won’t be long before they stop caring to spend any time or money with you.

So what do you care to do now?

 

 

 

 

 

Big picture before big data

So-called big data analytics has, without question, enormous potential. More and more, if you aren’t competing on analytics you aren’t competing. If you aren’t working to make your customer experience more personalized and relevant, you are on your way to becoming irrelevant.

Yet many, if not most, companies are not making good use of small data. If you haven’t figured out how to glean useful insight from what you already have, piling on more data is not only unlikely to help, it’s bound to smother and confuse your efforts.

So what to do?

For most brands the place to start is with a few big picture questions:

  • What are our most important customer segments and how are we doing against our desired outcomes?
  • What are the key drivers of performance for each segment? How are these drivers changing?
  • How to we stack up against our current and emerging competition? Where are we most vulnerable?
  • Where are the greatest opportunities right now to improve on the highest leverage drivers of customer profitability, loyalty and remarkability?

This relatively quick and easy exercise should yield a roadmap for where you need to go next in your customer insight journey. Generate a manageable set of hypotheses or options to guide your action plan. If a lot more data will help, fantastic. Get on it.

Many times you have plenty of data. What you need is more insight and more action. And if you don’t know where you are going, any road will get you there.