Attraction, not promotion

If you are familiar with 12-step recovery programs you know that most employ the Eleventh Tradition of Alcoholics Anonymous, which goes as follows: “Our public relations policy is based on attraction rather than promotion.”

The obvious reason for this practice is that 12 Step programs have the anonymity of their attendees at their core. Moreover, AA–and its many spin-off programs–reject self-seeking as a personal value. But it goes deeper.

Most people do not wish to sold to or want to heed the clarion call of “pick me, pick me.” If I have to hit you over the head again and again with my message, perhaps you are not open to hearing it. Or maybe what I’m selling isn’t for you. Constantly reducing your price or pitching me all sorts of deals may be an intelligent way to clear a market, but all too often it’s a sign of your desperation.

12 Step programs are among the first viral programs to scale. They gained momentum through word of mouth and blossomed into powerful tribes as more and more struggling addicts came to be attracted to and embraced the lifestyle of successful recovery. No TV. No radio. No sexy print campaigns. No 3 suits for the price of 1. When it works it’s largely because those seeking relief come to want what others in the program have.

In the business world, it’s easy to see some parallels. Successful brands like Nordstrom and Neiman Marcus run very few promotional events, have little “on sale” most days of the year and have very low advertising to sales ratios. Customers are attracted to the brands because of the differentiated customer experience, well curated merchandise and many, many stories of highly satisfied customers. Net Promoter Scores are high.

Contrast this with Sears and JC Penney who inundate us with an onslaught of commercials, a mountain of circulars and endless promotions and discounts. How many of their shoppers go because it is truly their favorite place to shop? How many rave about their experience to their friends? Unsurprisingly, marketing costs are high and margins are low.

Migrating to a strategy rooted firmly in attraction vs. promotion does not suit every brand, nor is it an easy, risk-free journey. Yet, I have to wonder how many brands even take the time to examine these fundamentally different approaches? How many are intentional about their choices to go down one path vs. the other? How many want to win by authentically working to persuade their best prospects to say “I’ll have what she’s having” rather than keep beating the dead horse of relentless sales promotion.

Maybe you can win on price. Maybe you can out shout the other guy. Maybe, just maybe, if you can coerce just a few more customers to give you a try you can make your sales plan.

Maybe.

 

 

 

 

All in

There is no shortage of business bestsellers, insightful white-papers and Harvard Business Review articles regaling us with multi-point programs to drive successful growth strategies. Consultants abound–including this guy–pushing clever frameworks to guide your brand to the corporate promised land.

Best demonstrated practices. Core capabilities. Disruptive innovation. Business process re-engineering. We’ve heard it all.

Yet despite an abundance of knowing, there is a paucity of doing. The same companies with the same access to the same information–employing high quality, well-intentioned  executives–get widely (and sometimes wildly) different results.

Having spent more than a decade working in omni-channel retail driving customer-centric growth initiatives, I’m often asked which company is the leader in this space. I usually say Nordstrom.

I led strategy and multi-channel marketing at Neiman Marcus during the time Nordstrom began investing in customer-centricity and cross-channel integration. So I can spout chapter and verse about the differences between our approaches and all the opportunities we missed. But with Neiman’s announcement this week of their new customer-centric organization (better late than never!) there are a few key things to point out:

  • Neiman’s has a lot of catching up to do
  • We knew the same things Nordstrom knew when they aggressively committed to their strategy nearly a decade ago
  • Nordstrom acted, we (mostly) watched.

We can quibble about some of the facts and the differences in our relative situations, but when it comes down to why they are the leader and Neiman’s–and plenty of others–are playing catching up, it comes down to this:

  • Nordstrom had a CEO who fundamentally believed in the vision and who committed to going beyond short-term pressures and strict ROI calculations
  • They went all in.

In a world that moves faster and faster all the time, organizations are really left with two core strategic options: Wait and see or go all in. Most choose the former and end up going out of business or stuck in the muddling middle.

Going all in doesn’t mean investing with reckless abandon or rolling the dice. Most all in companies do plenty of testing and learning. But testing with a view toward scaling up or moving on is a sign of commitment and strength not uncertainty and weakness.

Going all in must start at the top, with an executive who is wired to say yes. An all in strategy is fraught with risk. Mistakes will be made. You need a boss who has your back.

Going all in necessarily requires a supportive culture, but without complete organizational commitment it’s not nearly enough.

Going all in doesn’t pre-suppose a journey without bumps in the road. All in companies know how to fail better.

Culture eats strategy for breakfast?

Commitment eats strategy for lunch, dinner and a late night snack.

 

Dead brand walking

The business graveyard is filled with brands that have gone from the lofty heights of recognition, stature and profitability to flagging relevance and, ultimately, complete extinction. For every long-standing, legacy brand that continues to thrive (think Kraft or Coca-Cola) there is a former high flier that is now gone (think Borders or Oldsmobile).

Sometimes companies are hit by a largely unexpected exogenous force that sends them reeling. More often than not, the company’s ultimate demise surprises no one.

For some of us–investors or potential employees, for example–the key is to separate out the walking dead from the exciting turnaround story or the metaphorical Phoenix.

For business leaders, the obvious implication is to become aware of the early warning signs of decreasing brand relevance, accept the need to change and take the requisite actions. The obvious question, of course, is why are there so very many strategy meltdowns?

In my experience, brands go from healthy to critical in one or more of three ways.

First, you can’t fix a problem you aren’t aware you have. Many dead or dying brands lacked a fundamental level of customer insight. So not only did they not appreciate their vulnerability early enough, they didn’t focus on the important things quickly enough.

Second, just because you know something, doesn’t mean you accept it as the new reality. When I was a senior executive at Sears–the poster child for dead brands walking–we had tons of evidence that clearly showed our weakening relevance and declining profitability in our core home improvement and appliance businesses. Did those that could have changed Sears’ destiny truly accept that without aggressively attacking these issues it would eventually be game over? Sadly, then, as it is now, the answer is “no.”

More recently, when I ran strategy and multi-channel marketing at Neiman Marcus, we had plenty of customer research and analytics that our strategy of narrowing our assortments and pushing prices ever higher was losing us valuable customers to Nordstrom (among others). Did we accept that it constrained our growth and made us increasingly vulnerable in an economic downturn? Fortunately the harsh lesson of the recent recession–and a new CEO–”forced” Neiman’s to address these problems before they became crippling.

Lastly, even with keen awareness and complete acceptance of new realities, we regularly fail to take the (often radical) action needed. This is mostly about fear. Fear of being wrong. Fear of looking stupid. Fear of getting fired. Fear of risking one’s legacy or resume value.

In fact, history teaches us that it’s far more common to see executives holding on to a mediocre status quo rather than risk competing with one’s self or making a big bet on that new technology or innovative business model that is ultimately used against them by an upstart competitor.

Frankly, if your inability or unwillingness to act on saving your brand is rooted in fear, don’t hire McKinsey or Bain (or me for that matter) to help you with your strategy. My advice would be to get yourself a new management team and/or go see a therapist. It’s far cheaper and more likely to work. And do this before your Board figures it out.

Dead brands almost never die by accident. They die by leaders failing to see the signs of terminal illness while there’s still time to save them. And they die by management teams’ inability or unwillingness to take the necessary and decisive action before it’s too late.

Hopefully dead brands walking can be a lesson to us all.

 

 

Neiman Marcus & Target: A glorious failure

“Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.”

-  Samuel Beckett

If you pay attention to this sort of thing, you know that several months back Neiman Marcus and Target made a big splash when they announced a partnership to jointly market a limited collection of fashion items for the holidays. This announcement was followed by a lot of PR hoopla and a high-profile television and social media advertising campaign.

And guess what? It was a bust.

The product offering failed to generate the sales frenzy that past designer collaborations from Tar-zhay have, and the merchandise has been marked down 50 – 70%. The media are now out with their post-mortem bashings, many taking the “I knew it was a bad idea all along” route.

Having previously led strategy and corporate marketing at Neiman Marcus for several years, I’ve gotten plenty of questions about my take on the strategy and its execution (NOTE: full disclosure, I remain a Neiman’s investor). Frankly, I think much of the criticism misses the mark entirely.

Clearly, a lot of the execution was messed up. Prices were generally too high, designer brands were extended too broadly and some of the product was just plain goofy: a $50 Rag & Bone boys’ sweater? That was never a good idea.

Big picture, however, the concept was fundamentally good for both Target and Neiman’s. Target is well-known for enhancing its fashion cred with such partnerships; so for them, this was a no-brainer. If they made any money on it, all the better. But the real value is in brand enhancement.

For Neiman Marcus, the strategic value may be less obvious but, in essence, their foray into “mass-tige” is no different from Karl Lagerfeld or Jimmy Choo doing their special offerings at H&M. The goal is to generate buzz and expose their brands to a demographic that they need to cultivate for the long-term. Forging a longer-term and/or more broad partnership would be dumb. But experiments, such as what was tried here, can be shrewd moves indeed.

Which brings me to my last point. What gratifies me the most is that Neiman’s actually tried something bold and, arguably, counter-intuitive. Neiman Marcus’ last CEO–and my former boss–Burt Tansky was a brilliant merchant and remains a luxury and fashion industry icon–and rightly so. But he was hardly a risk-taker and fundamentally not wired to say ‘yes’ to strategic innovation. Kudos to Karen Katz and her team for being willing to push the envelope.

It’s so very easy to label something a failure after the fact and to castigate management for its ineptitude. The far easier path for leaders of course is to never try. You rarely get criticized for the things you didn’t do.

It’s a terrible strategy to eliminate the possibility of failure. Great companies and great leaders are not characterized by an absence of failure.

Without trying, there is no growth. Without failure, there is no learning. The key is to fail better.

So was the Neiman Marcus and Target partnership a failure? In the immediate-term, definitely. But the overall grade from where I sit is “Incomplete.”

If the lesson Neiman Marcus takes away from this project–and it is a project, not a strategy–is to pull back on innovation, to stop experimenting, than it will be a huge waste of time and resources. If it strengthens their resolve, if they apply their learning to improve the process of innovation, than it will be the most glorious of failures.

Out of Barneys’ rubble: What’s next for luxury fashion’s biggest boutique

Yesterday Barneys New York averted yet another trip to bankruptcy court through a major restructuring deal that converted most of their debt to equity (http://bloom.bg/IUyHir).

Unless you work at Istithmar–the PE firm that paid more than $940MM for Barneys in 2007 (oops!)–or owned Barneys debt, this is a big deal (pun intended). Barneys no longer has to divert the majority of its cash to service debt and now has greater capacity to improve existing operations and focus resources on growth.

So we’re good now, right? Not so fast.

To be sure, buying a marquee brand at fire sale prices sets up Barneys new class of equity owners for potentially high returns. And newish CEO Mark Lee has done a solid job of executing the basics and going after the proverbial low-hanging fruit. But we need to deal with a few facts.

We should not forget that Barneys recent improved performance comes at a time when virtually all luxury brands have performed well as the US market recovers from the devastating effects of the recession. As the market returns to 2007 levels–and we’re pretty much there–the reality is that the US luxury market is pretty mature.  Maintaining outsized revenue growth in the future is mostly going to need to come from market share gains and/or new stores.

The more looming reality is that Barneys is basically a 2 1/2 store chain. It’s no big secret that the New York and Beverly Hills stores drive the majority of profits while the Chicago flagship is a solid, but way less significant contributor. But expansions of flagship stores to markets like Scottsdale and Dallas have been disasters, and the Co-op stores have had decidedly mixed results.

Yes, Barneys expanded to markets like Las Vegas at precisely the worst time and yes, there have been execution follies along the way. But the bigger issue is that Barneys, as currently envisioned, is basically a big boutique. Unlike Neiman Marcus and Saks, which play in a full-range of affluent customer price points and target multiple lifestyles, Barney’s is tightly focused on a more specific customer from both a fashion point of view and price range.  In huge fashion markets like New York and LA, they can thrive. In smaller markets, faced with long-standing department store and boutique competition, it’s much, much harder.

Barneys has tried to correct for this by building smaller stores. While the stores are beautiful and contain a lot of great product, they mostly end up looking like a smaller boutique concept trying to fill up too big a space. So far, in markets like Dallas and Scottsdale, customers seem to agree.

For Barneys to profitably and meaningfully move beyond more than a handful of cities they are going to have to address a wider market while still maintaining a strong sense of their unique DNA and brand image. Faced with strong omni-channel competition like Saks, Neiman Marcus and Nordstrom–not to mention a whole host of e-commerce only players and local boutiques–that is no easy task.

 

 

The obvious obviousness of omni-channel

Sitting in sessions at last month’s NRF annual conference I might have thought a drinking game had launched where you would down a shot every time someone said “omni-channel” or uttered the phrase “seamless integration.”

Speaker after speaker–as well as subsequent press coverage–rattled off buzz-phrases, statistics and factoids regarding multi-channel consumer behavior as if this were some big new discovery or insight.

All this proved was one inescapable fact. There are two types of retailers in this world: those that have been paying attention and those that haven’t.

If you’ve been paying attention all of this has been obvious for years. If not, you are suddenly awakening to the cold harsh reality that you are behind. Perhaps way behind.

Any brand that has taken the time to understand consumer behavior already knows that consumers think brand first, and channel second. Any retailer that analyzes their customer data understands how digital commerce influences brick and mortar sales–and vice versa. Any company that has been willing to look, appreciates the large degree of cross-channel behavior that has been evident (and growing) for years.

It’s been more than 5 years since retailers like JC Penney, Sears and Neiman Marcus stated publicly that customers that purchase in 2 or more channels outspend single channel customers by a factor of 3 to 4X. In 2006–nearly six years ago!–my team did an analysis that showed that more than 50% of Neiman Marcus’ total sales (and a higher percent of profit) came from customers that purchased in multiple channels within a 12 month period.

The proliferation of robust mobile devices–smart phones and tablets–add more touch-points, new functionality and serve to further blur the lines between channels, while creating the need for more frictionless integration.

There is a big difference between a new reality emerging and your becoming aware of a reality that is already there.  And it’s dangerous to be confused about that.

Obviously.

 

It’s time to let go of that hammer

You probably know the saying: “If all you have is a hammer, everything looks like a nail.”

This explains a lot of behavior we see with the leadership at struggling retailers.

If you came up through the merchant ranks, chances are you obsess about product–rather than the consumer–and fall woefully behind in creating a compelling omni-channel shopping experience. Today, you are desperately playing catch-up.

If the only way you know to drive revenue is through relentless price promotions, you now sit lamenting the lack of customer loyalty and your shrinking margins.

If you made your money through financial re-engineering and scorched earth expense reductions, you assume your latest investment will cost cut its way to prosperity, rather than realize that your overwhelming issue is top-line growth (I’m looking at you Eddie Lampert!).

If you drove same-store sales through price increases rather than customer and transaction growth–as the US luxury retail industry did for many years–post-recession you find yourself with too narrow a customer base to sustain profitable growth. You now are working overtime to win back customers you priced out of your brand.

All of these problems were caused by a monolithic view of strategy and a failure to gain deep insight into customer behavior. Most were preventable.

Of course, the past is history and the future is a mystery.

But there is no mystery in the failed wisdom of clinging to the past and continually wielding the hammer that got you into trouble in the first place.

Let go.

Move on.

Get some new tools.

 

 

 

The end of e-commerce

We’ve gotten pretty used to talking about e-commerce and brick & mortar retail as if they were two entirely separate things operating in parallel universes. In fact, industry commentators often treat the “on-line shopper” as some sort of new species.

Yet more and more the notion of e-commerce as a channel unto itself is collapsing. A distinction without a difference.

Yes, some on-line only businesses like Amazon will continue to thrive, and no doubt we will continue to see purely digital retailers launched. Some will carve out profitable niches.

But with few exceptions, the real action–and the biggest source of future growth–lies with omni-channel retailers, that is, those brands with a compelling presence in brick & mortar and on the web (and mobile, and social, etc.).

When the media quotes the rapid growth of e-commerce, don’t forget that much of that growth is fueled by the digital operations of traditional brick and mortar players such as Macy’s, Best Buy and Neiman Marcus.

The reasons for this are simple. Consumers think brand first, channel second. Consumers use multiple touch points on their purchase decision journey. More and more, consumers value the unique convenience of on-line shopping, but often will appreciate the unique benefits of a physical store.

Forward thinking omni-channel retailers like Nordstrom have stopped breaking out the sales of their e-commerce division and their brick and mortar stores because they accept the idea that the distinction is increasingly meaningless. More importantly, they act on this insight and have worked hard (and invested mightily) to eliminate shopping friction and make their brand available anytime, anywhere, anyway.

So forget e-commerce and brick & mortar. Stop with the separate P&L’s, non-sensical incentives and channel-centric customer analysis.

Put the customer at the center of everything you do, and build from there. Rinse and repeat.

 

 

 

 

 

The people who want to hear from you asset

Go to your customer database. Right now. I’ll wait.

Now ask yourself the following questions:

How many of those people really want to hear from you?

How many actually pay attention to what you are saying?

Better still, how many eagerly anticipate getting your communication–Sunday circular, direct mail, e-mail, phone call, whatever–because they know it will contain something meaningful and relevant?

While it’s not on the balance sheet, one of the most important assets for just about any company is “the people who want to hear from you asset.” And many brands manage it poorly. As Seth pointed out in the classic Permission Marketing, permission is a privilege that needs to be carefully cultivated.

Just because e-mail is cheap, doesn’t mean you should spam me with largely irrelevant offers. But enough about Groupon.

Just because you are organized by channel, doesn’t mean your marketing shouldn’t speak to me with one integrated voice.

Just because I have shown a propensity to respond to prior offers, doesn’t mean you should up the quantity of communication to test my tolerance for pain.

At Neiman Marcus–because no one was paying attention to it–our highest opt-out rates were among our most valuable customers. We were squandering our people who wanted to hear from us asset.

Typically, it is expensive to earn marketing permission from customers with high lifetime value. Once lost, it is even more expensive to win it back.

My guess is you might want to start paying more attention to the people you want to keep paying attention.

 

 

 

Your next best customer

Who is your next best customer?

There are two ways to interpret that question. Both are important. Both demand clear answers.

“Next best” can mean secondary, as in nearly, but not quite, your best. “Next best” can also mean who will be the best in the future.

Many companies fail to develop a growth strategy that successfully addresses and integrates multiple customer segments. The common mistake is to assume that what you do for your primary customer segment will “drag along” the next best segment. That’s rarely the case. Hyper-emphasis on your best customers usually leaves room for the competition to pick off those who feel neglected.

At Neiman Marcus, we did a great job growing our business with our top-tier customers–mainly by raising prices–while failing to hone and execute our strategy for the next tier of (quite profitable) customers. When the recession struck, we were hit unusually hard, particularly with this “next best” group.

The other mistake companies’ make is not focusing enough resources–or starting early enough–to cultivate the profitable customer relationships of the future. Of course it is difficult to know how to invest in customers who will not have an ROI for many years. But it’s even harder to try to wrestle those customers away from the competition once habits are formed and loyalties have solidified.

There are few categories where the consumers who will drive the majority of profits ten years from now, look much like those who drive current profitability. If you aren’t already working on a strategy to engage these future consumers, you might want to get started. Today.

And when in doubt, always remember: treat different customers differently.