Don’t confuse members with customers

Thanks to the so-called flash-sales sites we now have a distorted definition of what being a member means. Before Gilt, RueLaLa and the myriad “private” e-commerce business wanna-bees, gaining membership in something typically meant you needed to actually do something more than have an email address and a pulse.

By now it should be clear to everyone that membership to these sites is simply a marketing gimmick. And an effective one at that.

But beyond semantics, the key issue is really how many of these members are actually customers? And of the actual customers, how many have bought more than once in the last year and how many are actually profitable (or have the potential to be)? You don’t have to tumble too many numbers to realize how shallow the customer base for most of these sites must be.

With competition heating up, and overall core sector growth flattening, it won’t be long before some investors become quite unhappy indeed.

Plunge

There are two basic ways to enter a swimming pool.

The first involves testing the water, cautiously inching your body into the pool as you slowly descend the steps or the ladder. It’s all about deliberateness and the hope that this “safe” approach will allow you to avoid any unpleasantness.

The second, of course, is to simply jump in–to plunge.

The avoiders come from a place of fear. The plungers embrace the risk, accept the trade-offs and commit. Once you are in the air, there is no turning back.

I wonder where Osama bin Laden would be if the Obama administration were afraid to plunge?

I wonder where the entrepreneurs behind Groupon, Netflix, Gilt Groupe and so many other share grabbing innovative businesses would be if they were afraid to plunge? And where the competition would be if they hadn’t been afraid?

I wonder what would be different if you took the plunge?

Twitter’s birthday: Blow out the candles, step on the gas.

You probably heard that Twitter celebrated its 5th birthday yesterday.

The flash-sales model pioneered in the US by GiltGroupe is about 3 1/2 years old.

Groupon was founded in November of 2008, not even 2 1/2 years ago.

While it remains unclear whether Twitter will go the way of a MySpace or a Facebook, it’s hard to question that they have forever changed the way people communicate and engage.

The collective valuation of the flash-sale sites launched in the US is likely already greater than that of Saks Fifth Avenue, a pretty powerful brand that is more than 100 years old.

Groupon turned down an offer from Google to be bought for $6 billion and is rumored to be seeking a $25 billion valuation in an IPO later this year.

These innovative new business models are rapidly gaining share from industry incumbents who are slow to go through the cycle of awareness, acceptance and action.

If it hasn’t happened to your industry yet, rest assured it will.

So let’s all wish Twitter a Happy Birthday.

And then, go figure out whether you are driving the right car or not.

Either way, get ready to step on the gas.

 

Competing with yourself

One of the biggest mistakes companies make strategically is failing to compete with themselves.

The only reason Sears is no longer the leader in the retail home improvement industry–and now on a slow slide into oblivion–was their unwillingness to build or buy an off-the-mall response to Home Depot when they had the chance. Having personally participated in 2 separate strategic studies in the early and mid 1990′s, I can tell you that the big hang up in making the plunge was leadership’s fear of sales diversion from the “core” mall-based department stores.

Whoops.

So it was refreshing yesterday to see Nordstrom’s acquisition of HauteLook, one of the leading flash-sales sites.

The luxury/fashion off-price market has exploded in the past 3 years with upstarts like HauteLook, GiltGroupe, RueLaLa, et al creating a $1 billion+ (and growing) sub-segment through daily online sales. And it’s clear that a lot of that business has come at the expense of traditional players like Nordstrom, Neiman Marcus and Saks.

It remains to be seen whether the price Nordstrom paid was sensible. And time will tell how well they will be able to leverage their capabilities and customer database to accelerate HauteLook’s growth and profitability. But one thing is clear. The other industry incumbents have been slow to react–or have responded with utterly unremarkable tactics–and have let many start-up companies steal market share and attract new customers in a space they could have easily dominated.

Retailers are pretty good at firing people when they don’t make their seasonal sales plan or manage their budgets well. When they let hundreds of millions of dollars of potential shareholder value slip through their hands by failing to act on business that is rightfully theirs, you rarely hear a peep.

That needs to change.

And you need to be willing to compete with yourself. Last time I checked you don’t any credit for your competition’s sales.

 

A very omni-channel holiday

First there were brick and mortar retailers and direct-to-consumer companies–and never the ‘twain shall meet.

Then came retailers operating in multiple channels–but don’t call them “multi-channel retailers”–most pursued their strategies in operational silos.

Then more companies came to realize that silos belong on farms, and we saw more integration: consistent branding across channels, pricing and promotional synchronicity and cross-channel marketing.

So where do we find ourselves this holiday shopping season?

Now it’s a world of the constantly connected customer, navigating an explosion of communication and transactional channels and touch-points.

Now it’s Twitter and FourSquare and FaceBook and blogs and customer product reviews on a retailer’s own site.

Now it’s Groupon and Gilt Groupe and dozens of other sites driving down pricing through channel innovation.

Now it’s a world where customers use their mobile devices to shorten the purchase funnel cycle to mere seconds.

Information is everywhere.

The customer can be activated anywhere.

Are you ready for the omni-channel world?

 

Luxury Market Research Smackdown

A number of media outlets have picked up on the debate between Pam Danziger of Unity Marketing and Ron Kurtz of the American Affluence Research Center (AARC) concerning the future of the luxury market.  Let me boil it down for you.

In a recent AARC report Kurtz recommends that: “Luxury brands and luxury marketers should be focused on the wealthiest one percent because they are the least likely to be cutting back and are the most knowledgeable about the price points and brands that are true high-end luxury.”

Danziger fired back “This is just plain dumb advice for luxury marketers.” She goes on to suggest that “the top one percent of the market (about 1.2 million households with average incomes of $500,000 and above) simply can’t carry the entire weight of the luxury industry.” Instead, she recommends that the luxury industry cast a much wider net, aggressively going after the so-called HENRY’s (High Earners Not Yet Rich) to energize significant future growth.

So who’s right?  Well, neither one, exactly.

Kurtz is right that the most elite segment has the greatest capacity and willingness to spend on luxury. But for virtually all but the most rarefied luxury brands, it would be an unmitigated disaster to focus only on the top 1%.  As the former head of strategy and marketing at Neiman Marcus, I can assure you that customers outside the top 1% contribute a very significant percentage of sales and profits.   And if you are Saks, Net-a-Porter, Gilt Group, Louis Vuitton or Gucci, I doubt it’s much different. Most luxury brands need the truly rich and the merely affluent.

So Danziger is right that most luxury marketers need to attract a wider demographic. But she goes too far.  First, while there are many more of the HENRY’s–and their aggregate spending is significant–as you move lower in income the number of potential customers goes up, but their spending on luxury drops dramatically.  Trust me on this: I’ve seen actual, recent spending data by percentile, and the difference between a 99% percentile and a 90th percentile customer’s luxury spending is vast.

The second issue is one of positioning.  The more a brand’s target customer group becomes diffused, the harder it is to be relevant, differentiated and compelling across each distinct consumer segment.  As brands aggressively court a wider demographic they risk alienating their historically strong elite core.

Like most things in life, the answer is not black and white.  It is rarely true that brands need to focus on only one segment.  A compelling customer growth strategy can be built on multiple customer groups.  The needs and value of each segment must be well understood and segment specific strategies designed and integrated to create a powerful blend.

But the starting point is a solid understanding of your customer base.  And apparently that starts with sifting through what the facts actually say.

I’m reminded of the lyrics from the Talking Heads song “Cross-eyed and Painless.”

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

Reset! Engaging Customers in the New Normal

If you missed the webinar that Jon Giegengack and I conducted earlier this week entitled Engaging Consumers and Growing Market Share in the “New Normal,” the recording of the session and presentation deck are now both available.

Webinar recording:

https://cmbinfoevents.webex.com/cmbinfoevents/lsr.php?AT=pb&SP=EC&rID=2764867&rKey=b264f15e93796eb1

Webinar deck:

http://www.cmbinfo.com/cmb-cms/wp-content/uploads/2010/10/The-New-Consumer-Report_2010.pdf

The Private Flash Sales Sites Jump the Shark

On April 19 I posted about my belief that the luxury off-price market was about to hit the wall, largely owing to a squeeze between a growing customer base seeking out great deals, and a diminishing supply of first quality branded merchandise.   I suggested that the various players in the space were going to have to evolve their winning formulas substantially to sustain their growth.

Well this seems to be playing out with the various high-end flash-sales sites (Gilt Groupe, RueLaLa, HauteLook, Ideeli and BeyondTheRack and the myriad wanna-bees).   In fact, what made these new concepts so great–and allowed them to gobble up market share–is rapidly being watered down.  Whether you call this “jumping the shark” or “nuking the fridge”, it’s a cause for concern.

All these companies have grown rapidly, attracting both legions of members and significant investment capital.  Their original value proposition was simple: offer well-known, high end brands at unbelievably low prices, and make them available in limited quantities during a short sale period.   This was an innovative re-imagining and up-scaling of QVC–or a blatant ripoff of Europe’s Vente Privee–depending on where you sit on the cynicism scale.  Regardless, during late 2008 and well into 2009, customers signed up in droves and feasted on high demand fashion brands at steep discounts.  Of course the rocket fuel during this time was the substantial amount of surplus inventory that both manufacturers and retailers were desperate to turn into cash.

A review of the flash-sale sites’ offerings today reveals quite a different story than even six months ago.

The first obvious thing is the paucity of true high demand luxury brands.  Tomorrow’s sale on RueLaLa features one true luxury brand (Pratesi), but also Andrew Marc, L. Spaace, Tailor Vintage and Cuddlestone.   BeyondTheRack has some Gucci, Prada and Robert Cavalli–though it’s sunglasses and wallets–not ready-to-wear or handbags.  The rest of their offering is Jonathan Marche, Ninety, SpyZone Exchange, CC Skye and Italgen.   Not exactly household names.  A check of Ideeli and Hautelook reveals the same smattering of brands you have heard of, while the rest is decidedly second tier or no-name.  Gilt Groupe, on the other hand, does seem to consistently have a much broader offering of true high end and fashion brands.

The second item of note is that the discounting is not nearly as extreme as last year.  And this is not surprising.  Last year, when manufacturers were stuck with mountains of unsold inventory, they were often willing to sell first quality product below their production cost.  Today, more and more product is not distressed, but rather made specifically to be sold in these channels; and that means the manufacturer needs a mark-up.  If your product acquisition cost goes up, the retail price goes up (i.e. the lower % discount to the consumer).

The other noteworthy change is the growing mix of product that is not fashion merchandise.  All these sites are starting to feature travel, wine and even bicycles.  On the one hand, this is a smart growth strategy: find more things to offer to your existing clientele.  For others, it smacks of desperation.

All this adds up to a model that, despite being barely two years old, is rapidly evolving and will likely look quite different by this time next year.  My guess is that by then several of these sites will be gone, bought out or struggling mightily, while a short list will leverage deep customer insight and new capabilities reinvent themselves and thrive.  Given that the big guys–Neiman Marcus, Saks and Nordstrom–have yet to do anything meaningful in this arena (and really why is it taking them so long?) we can only expect the competitive environment to become even more intense.

Any guesses on who will be standing tall versus who will become chum?