Analytics

Why do I worry about data-driven decisions?

1. There are way too many metrics
2. All metrics are not created equal.
3. Some metrics tell you only about  the past
4. Some metrics can give a false sense of causality
5. Some metrics can give a false sense of achievement
6. Some metrics are based on the wrong benchmarks
7. Metrics never give any advice
8. Metrics can be gamed
9. Some metrics waste too much time in gathering
10. Most metrics are focused on the company’s performance and not on the customer’s reality*
*even the ones that attempt to measure customer satisfaction can be suspect
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Scaling Growth. A Gift To An Entrepreneur

 
I met you last week, at a conference. I decided to write this for you. You’re not alone. It’s not only you who will benefit. My gift to you is a top-to-bottom analysis of how growth is misunderstood. It’s not a generic gift. Most of us can tell the difference between a gift that meets an obligation and a carefully thought out gift that was meant especially for you.
 
Business Growth 101
Marketing and sales are responsible for customer acquisition but not customer experience. They persuade prospective customers to buy products and/or services. This is where most companies focus on growing their business. It’s a mistake.
 
The Cost of Acquisition (CAC) is critical. Add all the costs spent on acquiring customers. Then divide by the number of customers acquired in that period. For example, if ABC Company spent $100,000 on marketing in a year and acquired 1,000 customers their CAC is $100.
 
Gross Margin is the percentage of profit that remains after paying costs. If gross margin is 40% and ABC Company’s average sale is $500 their gross profit is $200,000. It costs them $100,000 to generate $200,000 in new sales.
 
Every responsible business owner and executive worries about CAC and Gross Margin.
 
Peter F. Drucker wrote, “The purpose of business is to create and keep a customer.”
 
Creating a new customer is fundamental. It’s sexy.
 
And keeping a customer is also fundamental. It’s not sexy.
 
Customer retention, keeping a customer, gets less attention. The actions companies take to reduce the number of customer defections aren’t celebrated.
 
Customer lifetime value (LTV) predicts the profits of the future relationship with a customer. Customer retention directly affects lifetime values. If ABC Company spends $100 to attract a new customer it makes a $100 in gross profit on the first transaction. If they make $100 every month for five years they make $6,000. The longer the relationship continues the better the Return On Investment (ROI).
 
Customer equity is the total of lifetime values of all your current and future customers. It’s the sum total of all the value you’ll ever realize from customers. Customers create all value. Customer Equity is the same as the “going concern” value of your business.
Value of a Business = Customer Equity + (Assets – Liabilities)
 
Transactional vs. Relational Buyers
 
Every person has a transactional mode and a relational mode of shopping. Transactional buyers are those whose greatest fear is paying too much for something. They love the shopping experience. They will shop many companies and sites in search of bargains.
 
They aren’t loyal to any brand or business, they seek only the best price.
 
Relational Buyers’ greatest fear is buying the wrong thing. They see shopping as part of the cost of the purchase.
 
They seek out expert help and pay a premium for trusted guidance. They rely on relationships, with brands and people, to help them make choices.
 
Every person has a transactional mode and a relational mode of shopping. So don’t be surprised when you see yourself in both descriptions. You are extremely transactional in certain product and service categories. You’re also wholly relational in others. At any given time and in any given category, about one-half of all shoppers will be in transactional mode. The other half will be in relational mode.
 
Shoppers in transactional mode will shop everywhere. They love to negotiate. Businesses often conclude that most shoppers are in transactional mode, because they are so much more visible and vocal. But in truth, more purchases are quietly made by customers in relational mode.
 
Customer Acquisition Cost is dependent on Customer Retention
 
Businesses have a 60 – 70% chance of selling to an existing customer. The probability of selling to a new prospective customer is only 5% to 20%. – Marketing Metrics: The Manager’s Guide to Measuring Marketing Performance,
 
Consider that Amazon Prime customer visits convert to sales 74% of the time. They spend 3-5x more than non-Prime members. Approximately 60% of North American households are Amazon Prime members.
 
Can you see the impact that focusing on retention can have on acquisition costs?
 
Focus On Customer Experience For Sustainable Growth
 
The Rockefeller Corporation study found that 68% of customers leave because they believe that companies don’t care about them.
Bain & Company surveyed 362 firms. They found that 80% believe that they deliver a “superior experience” to customers. When they asked customers, they report that only 8% are really delivering.Bain & Co. calls that the “delivery gap”. We call that tragic!
 
 Now take a look at this:
 
When it comes to growth, customer experience clearly matters!
 
Now, let’s be generous and give that 80% of executives the benefit of the doubt. They genuinely believe that their companies are customer-centric Nobody ever argues when we explain the Four Pillars Of Amazon’s Growth.
These are Amazon’s four unifying principles.:
1. Customer Centricity,
2. Continuous Optimization,
3. a Culture of Innovation and
4. Corporate Agility.

What Gets In The Way? Think of the following as the four disunifying principles.

  1. An Organizational Focus–  keeps them from Customer Centricity. Internal teams are focused on their own team’s “performance”, not the customer’s reality
  2. Risk aversion—maintaining the Status Quo— keeps them from Continuous Optimization. People don’t  perceive their process as broken
  3. A Competitor Focus—watching the industry leaders—keeps them from having a Culture of Innovation. Companies see themselves relative to competitors but not relative to the gaps in customer expectations
  4. Misplaced Accountability—the need to place blame—keeps them from Corporate Agility. Internal teams meet or exceed their internal benchmarks but that data doesn’t reflect the customer’s’ reality
Intentions Matter, But Actions Speak Louder Than Words
We judge ourselves by our intentions, but customers judge us by our actions. Judging yourself by your intentions isn’t a danger among friends. A friend knows your heart. But it’s a very real danger in business. What happens when a prospective customer makes contact with your company? Do they meet your best employee on that employee’s best day? Of course not. They meet an average employee on an average
Or worse, they meet a below-average employee on a below-average day. And then you are confused by those negative reviews.
 
Sad, isn’t it? Your intentions and motivations and personal commitments never quite made it to the party.

You have a growing business. But it could grow more quickly.

You need to know your customers better. Recognize that customers have their expectations set by companies not even in your category.

As a leader, there are a lot of demands on you. It’s hard to prioritize and maintain a long-term focus when the urgent disrupts the important.

Instead of focusing on only on growing sales,  competitors, technology or all the changes in your marketplace we’d like to help you focus on the things that won’t change. You can build healthy sustainable growth if you focus on your customers’ priorities. Please believe me. If you deliver a great experience, maintain a reasonable margin, stay focused on your priorities then growth is inevitable.

Please read Be Like Amazon: Even A Lemonade Stand Can Do It. There are many examples you can learn from.  Also feel free to reach out if you have any questions,

 
 
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Why Retail CEOs Still Don’t Care About Digital

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Customers are more connected than ever. Software continues to reduce customer friction everywhere, from customer service to fulfillment. Logistics and payment systems continue to expand what’s possible for customers. Customers expect more and better.

Retail customers aren’t delighted with retailers. They feel differently about Amazon and in both cases it’s the CEO’s fault.

All the above is true. It’s why CEOs green light new and growing investments in technology and marketing. So how can I say that retail CEOs don’t care about digital?

Digital is not just a series of new shiny objects, cost cutting tools or new media ads. Digital should be the glue that connects every part of the organization with customers. Digital should allow every part of the organization to analyze data, learn from it, and act on it. The competitive advantage is putting that customer at the center of their universe.

… You can read the rest of this post as it appears on IBM’s THINK Marketing blog – Why retail CEOs still don’t care enough about digital 

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Real Brand Storytelling: Mitch Joel Interviews Bryan Eisenberg for the Twist Image Podcast

spos_lowres_rgbWelcome to episode #446 of Six Pixels Of Separation – The Twist Image Podcast. I have known Bryan Eisenberg forever. Back when I first started publishing music  magazines on the Internet (in the mid-nineties), there were few people writing about the power of the Internet from a business and marketing perspective. There were message boards and email lists… and that’s where I first started reading the work of Bryan. Now, Bryan Eisenberg is the co-author (along with his brother, Jeffrey Eisenberg) of the bestselling books, Call to Action, Waiting For Your Cat to Bark? and Always Be Testing. We have also shared the stage on numerous occasions, because Bryan is a professional marketing keynote speaker as well. He’s done much than that. He is also the co-founder of the Web Analytics Association (now the Digital Analytics Association), serves as an advisory board member of Search Engine Strategies, the eMetrics Marketing Optimization Summitand several venture capital backed startup companies (like Bazaarvoice, Monetate,Nomi, TagMan, and more). Most recently, he launched a new startup called,IdealSpot, and a fascinating new book called, Buyer Legends – The Executive Storyteller’s Guide. Enjoy the conversation…

Here it is: Six Pixels Of Separation – The Twist Image Podcast – Episode #446 – Host: Mitch Joel.

  • Running time: 46:59.
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Data Takes Center Stage This Week – 5 Posts You Might Have Missed

Data takes center stage in our discussions this week.
I. Earlier this month IBM’s Digital Analytics Benchmark Hub released its 2014 Holiday predictions.  By analyzing billions of data points from in-store and online transactions IBM made 6 predictions for retailers, here is one of them
Smartphones Browse, Tablets Buy: Smartphones will continue to lead in mobile browsing over the five-day shopping period, accounting for 29 percent of all online traffic versus 15 percent for tablets. However, IBM predicts tablets will account for twice as many mobile purchases than smartphones thanks to the larger screen size.
As a retailer the obvious opportunity this data analysis presents is the justification to optimize your site for tablet shopping.  Utilizing data for spotting trends like this is immensely valuable, but understanding the reason why these trends occur can uncover even more opportunities
In the case of this prediction, the fact that more people buy on tablets is only half the story, and it begs the question;  why aren’t people buying from their phones?
In a post on IBM’s SmarterCommerce Blog Bryan Eisenberg demonstrates how using Buyer Legends coupled with IBM’s data analysis can reveal even more powerful insights and more opportunities for retailers to take action. Bryan explains the key to understanding the “why” behind your data is knowing that data is always telling a story about people .  Bryan writes:

 

Those people have a vast array of thoughts, opinions, preferences, feelings, needs and motivations. The actions those people take are measurable, as evidence of that vast array of thoughts, opinions, preferences, feelings, needs and motivations. An analysis based entirely on the numbers can only take you so far.

II. On this blog we talked about Tesco, the UK’s largest supermarket chain, a trendsetting data-driven superstar whose recent fall from grace reveals more about the misuse of data than about the state of data driven business practices.

III. A research study about charitable giving prompted this post where we discuss the power of targeting your marketing at one person(a) at a time.

IV. Storytelling is such a powerful communications device that some are using it to increase their personal productivity, it is no wonder that it is so effective at improving communications, conversion, and execution in your marketing.

V. Roger Dooley at Forbes read our book Buyer Legends – The Executive Storyteller’s Guide and had some great insight into the book’s strengths and what makes the Buyer Legends process both unique and relevant.  He also left us this nice review on Amazon

Have a great weekend!

 

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Confused About What Comes First, the Customer or the Customer Data?

Data-Driven Poster Child Tesco Loses Its Halo

Teswhich came firstco had been recognized as a data-driven company that wowed investors. Now not so much, with its market value at an 11 year low. Investors are understandably disappointed. Should that give us pause about the value of customer data? Harvard Business Review might be making that case but we aren’t so sure. Tesco simply didn’t use data to support the customer experience. It seems to have used data to support the decisions it was already determined to make.

Tesco, Britain’s largest supermarket chain, got that way by pioneering the use of data specifically by mining data from their customer loyalty cards. Michael Schrage at Harvard Business Review writes:

With the notable exception of, say, an Amazon, no global store chain was thought to have demonstrably keener data-driven insight into customer loyalty and behavior.

Observers and those in the UK may already know that Tesco is on a downward spiral with it’s market value plummeting to an 11 year low.  A big part of the problem seems to be a major gaffe the company made in estimating it’s profits.  But there are other problems. Schrage continues

But the harsh numbers suggest that all this data, all this analytics, all the assiduous segmentation, customization and promotion have done little for Tesco’s domestic competitiveness since Leahy’s celebrated departure. As the Telegraph story further observed, “…judging by correspondence from Telegraph readers and disillusioned shoppers, one of the reasons that consumers are turning to [discounters] Aldi and Lidl is that they feel they are simple and free of gimmicks. Shoppers are questioning whether loyalty cards, such as Clubcard, are more helpful to the supermarket than they are to the shopper.”

Making The Anti-Data Case

That makes sense.  But then Schrage begins to speculate.

How damning; how daunting; how disturbing for any and every serious data-driven enterprise and marketer.  If true, Tesco’s decline present a clear and unambiguous warning that even rich and data-rich loyalty programs and analytics capabilities can’t stave off the competitive advantage of slightly lower prices and a simpler shopping experience. Better insights, loyalty and promotion may not be worthless, but they are demonstrably worth less in this retail environment.

A harsher alternative interpretation is that, despite its depth of data and experience, today’s Tesco simply lacks the innovation and insight chops to craft promotions, campaigns and offers that allow it to even preserve share, let alone grow it. What an indictment of Tesco’s people, processes and customer programs that would be. In less than a decade, the driver and determinant of Tesco’s success has devolved into an analytic albatross. Knowledge goes from power to impotence.

Schrage seems to want to give data driven business practices a blanket indictment.  But what if the actual problem wasn’t Tescos inability to innovate or create new promotions?  What if the problem wasn’t the fact that Tesco is a data-driven company? What if data-driven marketing isn’t doomed?

Data vs. The Value Of Correct Data Analysis & Execution

Assuming that data really does drive Tesco’s marketing, it is our guess that they made one or both of the following errors.

First, they may have been driven by the wrong data and were working to increase the wrong metrics.  Many companies use only the data that supports their current intuition. Bryan Eisenberg explains  how Amazon’s four pillars of success  revolve around data. If you read it  you will learn how Amazon avoids this pitfall.

Second, they may have gotten so buried in data analysis that they lost sight of the simple fact that all that data always tells a story about people.  Data simply measure the actions people take based on their feelings, motivations and situations. May I recommend that you check out, on IBM’s SmarterCommerce blog,  Bryan’s demonstration  of how using Buyer Legends avoids this pitfall this by turning data into story and then story into action.

Does your company use data to support the customer experience or does it use data to support decisions it’s already determined to make?

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What we can offer you

Four Pillars Ongoing Support

After our workshops, we work with only a few select clients. Your business must be committed to the Four Pillars (as described in Be Like Amazon) on a long-term basis .

Workshops

We kick-off the workshop with a two-day onsite visit. We help you create the Four Pillar foundation for your organization. The entire process takes between 4-8 weeks and the typical investment is $30,000 – $100,000.

Speak at Your Event

We can speak at your event. Our fees are $20,000 in North America, and that includes travel. International fees are $20,000 plus business class travel, from Austin, and lodging. Contact us to discuss your event