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Measuring ROI (or in other words… Did it Work?)

John Wanamaker of Wanamaker’s Department Stores in Philadelphia is credited with the famous quote decades ago,

“Half the money I spend on advertising is wasted. The trouble is I don’t know which half.”

Since that quote marketers have spent billions of dollars trying to measure the ROI (return on investment) of their marketing and advertising efforts. Do not follow in their footsteps.

I repeat, Do Not Follow In Their Footsteps!

Trying to calculate the ROI on your advertising is like trying to decide which butterfly in Mexico caused the tornado in Texas. The variables would make a meteorologist’s head spin.

Oh, but the experts say measuring ROI for an event or coupon is easy. Oh yeah?

Cause of Success
Was the success of your last event because you posted it on Facebook?
Or was it because you posted on FB at the optimal time; two hours earlier or two hours later and no one of any influence would have seen it.
Or was it because you ran into a friend at the gas station and mentioned the event to her while she was heading to lunch with her very influential girlfriends?
Or was it because you put up the in-store signs just in time for the newspaper reporter who happened to be out shopping on her lunch hour to see them?
Or was it because the road two blocks over was closed for temporary repair and all the traffic came down your street all three days the tent-sign was out on your sidewalk?
Or was it… you get the idea.

(Look, you can come up with a list of excuses twice that long for why you failed, why are you so willing to credit your success to one thing?)

(Note: I didn’t address coupons because I don’t believe in them, but a similar list of variables can come into play making one coupon offer work while a similar offer fails.)

Marketing doesn’t happen in a vacuum. Nor should it.

Cover Your Bases
If you are hosting an event at your store, you need to be plying every avenue you can muster to draw your crowd. Facebook, Twitter, email, in-store signs, and press releases at a minimum (because they are basically free). Radio, TV, newsprint, direct mail as the budget allows. And networking, networking, networking. Get your butt out in public and talk. The more you do, the more success you’ll see. And the harder it will be to determine which method made the most difference.

So don’t worry about figuring out which method worked best.

First, you never really know. I have on my sign-up-to-win forms a question, “How did you hear about this event?” At one event 30% circled newsprint – even though there wasn’t a single mention in any newspaper!

Second, it doesn’t really matter, because you can’t fully factor all those variables listed above. So anything you learn above and beyond the simple lessons that have already smacked you in your face is no guarantee to move the needle the next time.

Third, you don’t have the budget to properly test your ROI.

Lies, Damned Lies, and Statistics
Let the MBA’s falsify their stats to prove whether one form of marketing works better than another. The reality is that if you use your chosen media right, they all work. And if you use them wrong, they all fail. And the best laid plans can be derailed by a snowstorm, an orange cone, a bad news day, or a butterfly in Mexico.

Don’t waste too much time trying to calculate ROI. If you’re hosting an event, pick the marketing where you feel most comfortable. Put your energies there with all your conviction and the results will follow.

Then get out there and sell the dickens out of the crowd you draw!

Merry Christmas!

-Phil

PS Some of you might think this runs counter to my discussion of mixed media. That discussion was geared towards long-term branding. This is about short-term event marketing. Different beasts requiring different methods.

Black Friday Deals – A How To

Okay, you’re gonna venture into the murky waters of Black Friday with some doorbuster specials at your retail store. You better know what you’re getting into. Do it right and you’ll see your registers ring. Do it wrong and you just might be borrowing trouble.

Here are some tips to help you navigate the seas of this retail extravaganza.

First answer this… Why are you having Black Friday doorbusters? Is it to draw traffic? Grow market share? Move out some slow sellers? Because your shopping center makes you?

Knowing this makes all the difference in the world.

Going After Market Share
If you’re trying to grow market share and draw in new traffic, you have to have a really good deal on a whole lot of good stuff. And you need to share that info with the whole marketplace, not just your fan base. Email and Facebook won’t help you grow traffic and market share. They are only preaching to the choir. You’re going to need a flier in the newspaper or an ad on radio or TV. And that deal better be a killer deal because you’re up against a whole bunch of killer deals from a whole bunch of deep-pocketed retailers.

Still not afraid? Good.

Now you need to make sure you have enough product to keep the momentum going. Run out of your best deals in the first few minutes and the rest of the day is sunk. You need to have enough merchandise to last the first couple of hours minimum, otherwise you’ll send away far more unhappy people than happy ones – not a good marketing plan this close to Christmas.

And lastly, you have to make sure your staff is ready for the challenge. Do you have traffic flow under control? Is everybody up to speed on the deals and how to ring them up? Is everybody okay with the new hours? (especially if you’re opening up extra early) Are they trained for dealing with unhappy customers, unruly customers? It’s a given that you’ll have at least one or two.

That’s a minimum of what it will take to attempt to grow market share on Black Friday. (And there’s no guarantee it will work. The competition is pretty savvy.)

Moving Out the Dogs
Maybe all you need to do is get some slow movers off the shelf, make those dogs bark. You can give the appearance of having a Black Friday type event without all the expense and risk, just by marking down some merchandise that you were probably going to mark down anyway.

First, this is a good day to start those markdowns. The Transactional Shoppers are out in force and looking for a deal. Second, you won’t have as many unhappy customers, seeing that it was older, closeout merchandise in the first place.

Plus, you can advertise that kind of sale purely to your fan base and make them feel even more special because they knew what was happening before the general public who has to show up Friday to see what is on sale.

Doing Nothing At All
Then again, you don’t have to do much of anything to make Black Friday special. Put out a pot of coffee for those early risers. Dress up the store in your best Christmas spirit. Make sure your shelves are fully stocked & straightened. Put your happiest smiling faces on the sales floor and let them do their magic.

The day after Thanksgiving has always been a strong shopping day, and it wasn’t the discounts that always drove the traffic. Only in the last couple decades have we seen this day become the who-can-open-earlier-and-sell-it-cheaper event that it is. You don’t have to join that fray to be successful.

In fact, if you take the hands-off approach, make sure you staff your store stronger in the afternoon and evening, and be ready for another big rush Saturday. There are a lot of customers choosing not to fight the long lines Friday. To them, no deal is worth the hassles of long lines, unhappy people and early mornings. They’ll be out in force later and don’t want to deal with those been-up-since-three-don’t-bother-me sales people.

This Black Friday, whatever you decide to do, do it consciously and do it right!

Happy Thanksgiving!

-Phil

To Labor on Labor Day or Not

Are you open this Monday? We aren’t.

Labor Day & Memorial Day are paid holidays for my staff (along with New Year’s Day, Easter, 4th of July, Thanksgiving and Christmas).

We’re also closed Sundays of Labor & Memorial Day weekends.

Why?

For my staff. They deserve a break. I expect a lot from them and so I need to reward them from time to time. Giving them paid holidays and long weekends is one way I tell them that breaks are important and family time is a priority and that it isn’t always about chasing the almighty dollar.

Plus, in our town it just isn’t a big shopping day for anyone but the Transactional Customers looking for a Labor Day sale. And I’m not going after them.

You may have your own reasons for being open or closed this weekend. That’s fine and good by me. Just thought I’d tell you mine.

Happy Labor Day! (wanted to tell you that now, because Monday I’ll be sleeping in:-)

-Phil

Make Your Dogs Bark!

If you’re in retail, you’ve done what I’ve done – bought stuff that didn’t sell. Oh, it looked good in the catalog or at the trade show. The sales rep gave you tons of info on it. You put it in a great location, even trained your staff on all its finest features.

But at the end of the day, the customers weren’t buying.

So what do you do with those dogs? Make ’em bark and move ’em out!

This Thursday we’ll have over five times the usual customers at our Summer Fun Sale. It’s our once-a-year clearance sale (or as my friend calls it, the make-it-go-away sale).

For the past two months we have been searching the store for the dogs, the merchandise that just won’t hunt, and red-tagging it at half-off the regular price. We’ve been storing these goods in a corner of the warehouse waiting for the third Thursday in July.

On Wednesday we’ll close a couple hours early and set up tables & shelves right in the center of the store. And on Thursday the fun begins. Our first customers will arrive about an hour before we open. They’ll sit by the front door in lawn chairs and peer through the window with binoculars to search out the deals they want to scoop up first. About fifteen minutes before the doors open our parking lot will be full.

And three hours later, I’ll be making my first trip to the bank!

Some people ask me why I do it this way. They ask questions like…

Why do you always mark it half-off and not 25% or some lesser margin?

I mark it half-off to create both excitement and urgency. Anything less and customers might not bite. Remember, these are items no one wanted. Your customers already voted a thumbs down on them. You need to go big if you want to get their attention.

Why wait until one certain day? Why not just mark it down and have a clearance area?

I don’t want to train my customers to expect a markdown. A clearance area that is always full of new merchandise just tells customers to wait until the item they like ends up there. The thinking goes… something is always on sale, so why pay full price? Plus, the excitement factor goes way down. Think about it this way… Would you rather have your parking lot full and people lined up at the door fifteen minutes before you open, or the same few regular customers wandering through the clearance section on occasion?

Why mark it down at all? You’ve already paid for it and now you’re just losing profit.

If you read my earlier post on Gross Margin Return on Investment, you’ll remember that GMROI is calculated by dividing your Gross Profit by your Average Inventory at Cost. Selling a whole bunch of inventory at half-off does not increase my gross profit, but it does wonders for lowering my average inventory. Plus, the cash I get gives me the opportunity to go buy something else that will make me a profit.

Here’s another way to look at it. If I buy a crib for $350 and put it on my floor, but don’t sell a single piece for a whole year, that space on my floor has cost me $350. But if I sell that crib for $250 after 6 months, I now am only down $100 for that space and have 6 more months to put something else there that might make me money.

The bottom line is this…

Don’t be married to your merchandise. If you have dogs that have gotten fat and lazy, you need to make ’em bark and move ’em out. Turn them into cash and move on. That includes seasonal merchandise that didn’t sell during the season, too. For us that means the Summer Fun Sale – a necessary part of my inventory management plan.

-Phil

Here’s Something I’m Watching

Yesterday’s paper had an article about a new strategy Wal-Mart is rolling out. They’ve decide to do… wait for it… price cuts. Yeah, they’re cutting prices again (you’d think with all the price cuts that their prices should be zero about now, right?).

Here’s the interesting part of the article… They are only cutting prices on 20-30 key items – mostly groceries like cases of Coke. Twenty to thirty out of 100,000!?! And that’s gonna change people’s perception and drive traffic to new levels?

Either Wal-Mart thinks the general public is really gullible, or perception truly is reality.

I predict they’ll get a little bit of a traffic bump from people who only want the specials, but with such a small selection of price cuts, I also predict their competitors will have no problem matching them. (In fact, according to the article, Target and Kroger already had.)

But in the long run it won’t move the needle. But if it does…??

Yeah, that’s why I’m watching it.

-Phil

PS Apparently Wal-Mart has run out of ideas. Hopefully you haven’t.

Profits versus Cash Flow – Which Will You Choose?

Sometimes in retail you are faced with a difficult choice. In a tough economy, one of those choices is Profit vs. Cash Flow.

Sometimes you have to give away your profit to get more dollars streaming through the till. Sometimes you have to give up chasing dollars just to protect your profit margins.

The question is when do you choose Profit or when do you choose Cash Flow?

The answer is when you know exactly where your business stands, where you want to go, and what you need to do to get there.

For instance…

My goal for this past year was to show a profit. The bank gets a little nervous when you don’t show a profit, and to guarantee a renewal of my line of credit in these tough lending times, I knew that showing a profit would give the bank confidence in my stability and ability to succeed.

Last November I made a conscious choice to go after profit instead of cash flow. I chose not to run a direct mail coupon incentive that I had used in previous years. The trade-off was dramatic. Sales were down for November because I gave no incentive to shop early. Profit margin was way up, though, because I didn’t give away the house.

But as I looked at the lost sales in November, the question begged… Did I lose those customers for November or lose them for good? The answer came quickly in that first week of December… I only lost them for November. At the end of the two months my sales were where I expected going into the season, down only slightly. But my profit was up for the same period compared to last year. Had I run the coupon, I would have increased sales (cash flow) but decreased profit.

Because I knew my goals and knew what I needed to do to achieve them, I was able to be successful. Because I knew how my choices would affect my cash flow and profit, I was able to choose the right approach.

So what is the right approach in your business? It depends on your short and long term goals. Do you need to improve cash flow to fund a new project? Or do you need to show a strong financial statement to your investors? Do you need to improve cash flow to pay off your vendors or do you need to grow your profit to pay off yourself?

When times are good, you can do both at the same time. But when times are tight, you sometimes have to choose. Choose wisely, my friends, by knowing your goals and the means by which you will achieve them.

-Phil

PS The choice was made easier because our cash flow had been strong up to that point. What I lost in cash flow was allowable because I had built up cash flow from the previous year (at the expense of profit) Sometimes it is a seesaw between the two.

Two Ways to Increase Profit Margins (Without Bullying Anyone)

There are two simple ways to increase your profit margin. The first is to increase your prices. The second is to have fewer discounts and sales. (There is a third method to higher profit margin – lowering the cost of the goods, but that involves the vendor, which doesn’t qualify as simple)

Did you know you could increase prices on some items and actually sell more at the same time?

Quick, without thinking too hard, tell me how much you would pay for a toilet plunger. Five bucks? Ten? What if it had a Vermont Pine handle and was made in the USA? Fifteen?

What if your only toilet was clogged and your wife was pregnant? Twenty Dollars?

Our perception of the cost of many items changes based on our needs and our belief in the product.

By the way, I just bought one the other day for $1.99 – well below what I would have gladly paid for one. (No, my wife is not pregnant.)

Too many retailers make the mistake of pricing items based on their cost. We dutifully take the cost of the item and use some factor or calculation to determine a retail price.

What we miss in this calculation is the human element of the equation. When a customer walks through the door she immediately starts making mental calculations on the Perceived Worth (PW) of each item she sees. If it’s something she doesn’t need, the PW is zero. But if it’s something she needs, she assigns a dollar value to it. Then she checks the price tag. If the price and her PW match, it’s pretty much a guaranteed sale.

But if they don’t match, a second evaluation takes place.

If the price is higher than her PW, she’s not buying.

If the price is lower than her PW she’s going to ask, “What’s wrong with this?” Until she answers that question to her satisfaction, she’s also not buying.

This mental calculation is going on in your store every single day and costing you sales and profits because of it.

Here are two tips for pricing your products that use this knowledge to your advantage.

First, when a new item arrives, before you price it, take it around to your staff and ask them how much they think it is worth. You may be surprised to find that the PW of an item is often higher than the price you were going to mark it.

Second, think about prices the same way a customer thinks about prices – in rounded off numbers. No woman ever looks at a dress and thinks, “Wow this looks like an $87 dollar dress!” It’s always numbers that end in zero or five. It’s a fifty dollar, seventy-five dollar or hundred dollar dress. So don’t price something $97.99 when perceptually it’s a hundred dollar item. You’re just giving away two bucks. The same is true with smaller amounts. $28.99 and $29.99 are the exact same price to a customer – both are a thirty dollar item. But to you, that extra dollar is your profit. You’d be better off standing at the front door handing out one dollar bills than giving them away blindly on a poorly priced item.

If you want even more tips on how to increase your pricing while actually making your merchandise look more affordable, download this free eBook Pricing for Profit.

The second thing eroding your profit margin is sales & discounts.

You keep hearing that everyone is looking for a bargain. The data backs this up. Kinda. A National Retail Federation survey showed that 40% of shoppers were looking for sales & discounts to determine where they shop. Another 12% were looking for everyday low prices. By my math, that only comes to 52%. The other 48% were using some other non-price-related criteria for determining where to shop.

You don’t have to discount to get traffic. But you have to give customers what they want. And according to NRF, 48% want a great selection, great service, and a great experience. And those customers are willing to pay for it.

If you keep offering discounts, coupons and sales every time you turn around you’re doing two things to your business.

  1. You train your customers to wait for a sale
  2. You train your customers that regular price is too high

If that’s what you want, good luck. But if you want to increase your profit margin, you have to wean your customers off the sales, coupons and discounts and start offering them over-the-top customer service.

We gave up our one and only coupon this year. We lost a little bit of sales in November (when the coupon normally ran) and made some of it up in December. Best of all, we had a higher profit margin for the two months, which more than made up for the lower sales.

Bottom line? Our bottom line improved. We increased our profit margin another point. And that has made all the difference.

-Phil

What Are You Tracking?

You can’t manage what you don’t measure. Here are two numbers you should be measuring this holiday season.

Traffic Count: How many sales do you have per day (Monday, Tuesday, Wednesday…)? Per day part (morning, afternoon, evening)?

Knowing this can help you schedule your staff to better meet the peaks and valleys of your daily & weekly sales. It also helps you measure the success of your marketing and your customer service. If traffic counts are up, you’re doing something right. If they are down, you better figure out why (and it isn’t just the economy).

Average Ticket: How much is the average transaction or sale? Which employees have higher or lower averages (if applicable)?

This number helps you measure the effectiveness of your sales staff and promotions. It also helps you understand your merchandise better. Are you getting the add-on sales? If not it could be that you don’t have the right products to complete a customer’s purchase. If you sell dolls, you better sell doll stands. If you sell electronics, you better sell batteries.

Measure these two numbers. They have a lot to say about your success.

-Phil

Growing the Top Line or the Bottom Line, What’s Your Goal?

I just returned from the American Specialty Toy Retailing Association (ASTRA) Marketplace 2009 in St. Paul, MN. Hundreds of toy retailers and manufacturers gathered to highlight the best toys for 2009 and the best practices for toy store owners.

And over the course of 4 days I must have heard the question, “How’s biz?” at least a hundred times.

It’s a fair question. We’re all concerned with how other retailers are doing in other parts of the country. The issue I have is with the answer.

Most every retailer talked only about their top line sales. Sales were ‘flat’ (flat is the new up), ‘down a little’, ‘holding steady’, ‘tough’ and many other euphemisms for “not what we want but who’s complaining?”

But no one mentioned the bottom line – profit. When you get right down to it, retail is not about top line sales but bottom line profits.

If top line sales were all it takes to make you happy, I have a guaranteed 3-step program to raise your sales 100% over the next three months.

  1. Mark everything at half price.
  2. Quadruple your advertising.
  3. File bankruptcy.

Anyone want to try it?

One of the speakers at ASTRA, Bob Negen, pointed out correctly that there are only three ways to increase top line sales:

  1. Get more (new) customers
  2. Increase average sale
  3. Get existing customers to shop more often

Bob went on to give us great tips for doing all three with the idea that if we grew our business 5% each way we would have 15% top line sales growth. Who wouldn’t want 15% sales growth?

Before you answer, let me rephrase the question… Who wants 15% sales growth with 30% growth in costs? Doesn’t sound so good, now, does it?

One of Bob’s ideas to get customers to shop more often is a Frequent Buyer’s Club. You’ve seen these. Shop a certain number of times, spend a certain amount of money, and get a kick back of some sort. In Bob’s way, the customer shops 6 times and then gets a store credit for 10% of her purchases as an incentive to shop more. In essence, it’s a 10% discount for 6 out of 7 trips to the store. And this idea is supposed to grow your sales by 5% by getting customers to shop more often.

I’m not the brightest mathematician around, but spending 10% to get 5% growth doesn’t add to the bottom line. Probably why I’m not a fan of discounts, coupons or Frequent Buyer Clubs.

On the other hand, Bob gave some great ideas for increasing the average sale.

  1. Raise your prices
  2. Add on to every sale until the customer has everything she needs (what I like to call “completing the sale”)

Both of these ideas will not only increase your top line, but also add to the bottom line.

When you are looking at ideas to grow your business, remember that your goal is to grow your profit, not necessarily your sales. Look at each idea carefully and see how it changes your bottom line, not your top line.

Paying attention to the bottom line is what will keep you in business and make you most happy.

-Phil

Are You Riding the Mommy Tsunami?

There is a tidal wave of babies being born. A group large enough to rival the heralded Baby Boomers. And the moms having these babies are the most educated, wealthiest, most connected group of moms in history.

They have a name for this group – The Mommy Tsunami.

When the Baby Boomers had their kids it was called the Echo Boom. Other names like Gen X and Gen Y have been used to describe the echo boom. Whatever you choose to call them, this group is now having babies.

But with one difference.

This group is waiting until later in life to have kids. This new mom is typically about 30 years old, college educated, and has invested a few years in her career before stepping out to start a family.

She has the power of the Internet in her purse, a camera on her phone, and an account with YouTube.

She grew up in an over-saturated advertising market so she is cynical to all forms of marketing. She ignores the hype. She pooh-poohs the over-the-top claims. She calls out anything that she knows is a fake. She doesn’t bite when you say “biggest sale ever!!” because she knows you’ve got another sale lined up two weeks later. She knows what the fine print says. She knows that no matter what you say, everything has a downside.

And if you cross her, she’ll have a video on YouTube within the hour and ten thousand of her closest friends will see it by nightfall. She’ll destroy you with the power of a tidal wave.

Yet, the Mommy Tsunami has more dollars to spend than any group of moms in history.

How do you reach this powerful, cynical, knowledgeable consumer?

The answer is quite simple – honesty.

Product knowledge used to be your advantage. But with the Internet at her fingertips she probably knows almost as much as you do about what you sell. You can’t trick her into thinking this is the only option out there. She knows what the competitors have. She researched it last night in her pajamas. She knows what features every product in the category offers, and has probably read a half dozen reviews to know which features actually work.

Now she needs someone to put that knowledge into context to show her how each feature fits into her life (or doesn’t fit). She needs someone willing to be up front about the downside she knows is inherent in everything. She needs someone to tell her which features will actually benefit her in her lifestyle and which ones the company threw on just to jack up the price. She needs a salesperson to show her the benefits and the shortcomings.

Total, unabashed, show-all-the-blemishes honesty.

She needs someone willing to listen to and fulfill her needs, not shoehorn her into something that suits your needs. She is thrilled when you tell her why not to buy something. She is thrilled when you go out of your way to get what she wants instead of just what you have. She is thrilled when she knows you are looking out for her best interest. She is thrilled, mainly because it happens so rarely.

She knows that businesses lie. Every great offer comes with a fast-talking disclaimer. Everything is “subject to change” and never in her favor. Every great price has a hidden fee. In this ever-increasing self-serve world, everything is a take-it-or-leave-it proposition. And too many times she is leaving it.

Honesty means sometimes saying, “I don’t know,” followed by, “Let me find out.” Honesty means sometimes saying, “I can’t help you here,” followed by, “But let me call someone who can.” Honesty means being transparent in your ads, your products, your sales pitch, and your closing. Honesty means being transparent in all of your business practices, in what you stand for, in what you believe.

The Mommy Tsunami has the power of a Tidal Wave and can crush you just as fast. But just ask one of those crazy big wave surfers in Hawaii. They’ll tell you the thrill of riding the wave just once outweighs the risk every time.

Happy Surfing!

-Phil