F. Curtis Barry & Company » Marketing & Merchandising

Shopping Cart Abandonment, A Consumer’s Advantage?

Tocky Lawrence — Thu, 10 Sep 2009 14:57:21 +0000

I recently had a conversation with a friend of mine discussing the opportunities of shopping on the Internet. Okay, in reality we were discussing how the economy has affected consumer buying patterns and what we were really after is finding the best bargains. My friend shared with me something that I had not heard of before but in turn seems to work, much to my amazement, a strategy that I never thought to employ.

My friend is a shopper that I would consider to be a cost sensitive purchaser, one that is always looking for the best price on an item that she is interested in. This leads to a tactic she recently deployed and believe it or not has to do with shopping cart abandonment.

During our conversation she shared with me that she has on several occasions, put items in shopping carts of various websites that she would like to purchase from. Typically these are items that she wants but is in no hurry to purchase right away. She then abandons the shopping cart if the item is at regular price and/or there isn’t a discount readily available. I kept thinking why would you do this? Well it turns out that many companies want to turn the abandoned cart into a sale, so my friend plays the waiting game. Eventually she receives an email from the business letting her know that they have noticed her shopping cart was abandoned and if she would like to purchase the item. Now here is the interesting part, to capture the sale the business usually attaches an incentive, either a discount or free shipping offer if she completes the transaction. With the discount in hand she usually makes the purchase.

Wow, I would have never thought of this as a consumer buying strategy to get the best deal but my hat is off to her as a savvy shopper looking for a discount. If this becomes a wide spread practice, how will this affect your profitability? Let me know your thoughts.

Tocky Lawrence is a Vice President with F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; learn more online at: http://www.fcbco.com.

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Analyzing Your Company’s Marketing ROI – 5 Problems Revealed

Brian Barry — Wed, 22 Jul 2009 17:53:40 +0000

Recently a few of us at our firm set out to develop a sophisticated marketing business intelligence module with our partner company Taurus Software. In order to do this we decided we would meet with as many multi channel companies from $10 million in sales to $100 million in sales as possible, as well as other industry experts. We found many surprising facts during this process.

1. We found a sheer number of companies that do not accurately use source codes and offers in a consistent and disciplined manner for all electronic media types including banner ads, natural search, paid search, shopping comparison sites etc. Without this, a meaningful ROI cannot be performed.

2. Companies did not accurately measure the true cost of the marketing initiatives by media type and since most didn’t use unique source codes they weren’t able to measure which media type and source code out performed others.

3. Marketing initiatives often compared gross margin earned to the marketing expenses, but very few allocated the cost of acquiring and processing those transactions to truly look at the net contribution to profit. One example of this is the percentages paid to affiliate marketing initiatives and not taking in to account the operation or general and administrative expenses to understand at what point an initiative is not profitable.

4. Most companies did not set goals for determining how individual media types should be measured to determine which was a success and which were failures. The stronger companies set goals for gross dollars generated per marketing dollar spent and aimed for at least a 3.5 to 1 for instance. If this type of goal wasn’t met the initiative was cut and the dollars were funneled towards other tests or successful initiatives.

5. Companies did not often accurately analyze what initiatives drove new customer acquisition versus customer loyalty and retention. We found that numerous companies could not truly say what initiatives drove these customers, and whether or not these new customers would become long term profitable customers based on the source of the transaction.

Can you relate to any of the five problems above – are they still problems for your company? In order to accurately measure the effectiveness and ROI of your marketing initiatives, both printed and electronic, it is imperative that you develop a well disciplined, consistent approach to setting up and measuring your company’s marketing initiatives.

If you are in need of revamping your marketing strategies and understanding how to be more efficient and profitable with your marketing spend, then call us and let us give you a hand. We would be pleased to assist you with this process.

Brian Barry is a Senior Consultant with F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; Learn more online at: http://www.fcbco.com.

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Understanding Your Demand Winners

Brian Barry — Wed, 22 Jul 2009 14:09:07 +0000

Almost every company that we work with can easily rattle off and name the top 10-20 products with the highest gross sales, or demand winners. But often times these same companies couldn’t tell us which of those items are profit winners. The first guess is usually those core items that they never want to be out of stock on because maybe they are private label or unique products but usually have a nice price point and good margin. But in any case, companies should be able to point out the top demand winners but then also be able to point out the most profitable items as well, or those that contribute the highest net contribution to profit.

What do we mean by net contribution to profit? Net contribution is derived from taking an item’s (or category etc) gross demand dollars and subtracting out the cancel and return dollars. This leaves you with net sales dollars – or most importantly what you put in the bank. Now take the net sales dollars and subtract out that item’s allocated marketing, operational (call center and fulfillment) and lastly its general and administrative (G&A) dollars. This leaves with the true profit or loss earned by that item.

Here is a perfect example of understanding demand winners but not evaluating profit winners. Just the other day we were analyzing a clients merchandising results for spring and early summer 2009. We reviewed the top 25 demand winners with them and then allocated the additional expenses form marketing operations and G&A. The results were very interesting.

Nothing too out of the ordinary in the top 5 or so items – they were the top demand winners and for the most part were all in the top 5 from a net contribution to profit perspective.

But the 9^th highest demand winner happened to be ranked 621 in terms of profitability out of 1630 products.

The 12^th highest demand winner was ranked number 1,630 – making it the least profitable item offer in the spring and summer campaigns.

Numbers 17 and 18 of the top 20 were ranked in the bottom 20 of the all time least profitable products.

In this case these products fell into two categories. The first category was the low retail price and high margin percent. But the problem is that these products were under $10 with a 48% gross margin percent. After allocating marketing, operational and G&A expenses these items lost a tremendous amount of money – especially considering the sheer number that were sold.

The second group were those items that were technical in nature and required a lot of question and answer in the call center but were also fragile. So their allocation of costs were much higher than most other items. Longer to answer customers questions and much more care and packaging in the fulfillment center. This ate up margin dollars, of which the margin was relatively low compared to other items.

It’s important to understand how items are performing, which ones are your “bread and butter” and those that add to the bottom line instead of chewing up the bottom line. When was the last time you did a thorough merchandise analysis and revealed what the numbers are really telling you? How many of your top 20-30 demand winners are also your profit winners? If you can’t answer these questions then maybe it’s time that we talked about assisting you with an in-depth merchandising analysis. Call or email us and see how we can assist you with this process today.

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What Is Your Inventory Strategy For Christmas 2009?

Paul Sobota — Mon, 20 Jul 2009 18:45:39 +0000

A few years ago I was in Australia in July and saw a lot of retailers advertising specials for “Christmas in July”; a novel idea as it is winter in the southern hemisphere at this time. Well I have started seeing ads for layaways from Kmart and Hallmark debuting their Christmas ornament collection. U.S. retailers are doing this for different reasons than our Aussie friends.

U.S. retailers are trying to stimulate sales now as merchandise is arriving in stores for fall, and back to school. U.S. retailers don’t want to be burned like they were last year, so inventory levels will not be purchased anywhere to the extent that they were last year.

According to The Commerce Department, inventories are down 8% through May from last year at this time.

Here is a sample of what our clients are saying about their Christmas inventory planning:

Hard Goods Catalog

Limited initial buying. Going to read sales forecast after the catalog is in the field and then place larger re-orders. Willing to sacrifice some early backorders to limit over inventory exposure. We can not have excess inventory on hand at the end of December.

Children’s Catalog

Ours is really business as usual, we have ramped up with a few more drop shippers than we have in the past, but we still continue to grow our import business and rely a little bit less each year on domestic shipments.

Hobbyists

Just in time as much as possible and attempt to carry less inventory Holiday 2009 vs Holiday 2008.

Home Catalog

Our plan is flat with Holiday 2008 actual demand. Less decorative and gift items, more focus on functional products which tend to carry over from campaign to campaign so a better exit strategy. In addition, we are ordering within lead-times, thus closer to demand. This has been a shift from the past when the need get your orders into the production cycle was critical. Consequently, our open receipts are significantly down from last year and even budget. We are finding that Chinese vendors, in particular, are turning orders very quickly.Inventory is the biggest balance sheet asset in most businesses. Slow selling, discontinued and obsolete inventory can build up reducing inventory turns, cash flow and space in the distribution center.

Will consumers have the deals they had last year? I don’t think so. Scaled back inventory levels will sell out with fewer sales events leaving some consumers without much of a selection the closer we get to December.

U.S. retailers touting “Christmas in July” are looking for consumers to commit on electronic and large ticket items now while they may have a few extra dollars or through the utilization of layaways to secure there Christmas gifts.

Is your inventory at the right level for this Fall selling season? Have you adopted the best practices for forecasting and managing inventory? Have you implemented vendor compliance policies? Do you need to upgrade your systems?

Need help reviewing your inventory strategy, if so we offer inventory assessments for typically $6,500 – designed to be performed quickly with a high ROI and actionable recommendations – click here to learn more.

F. Curtis Barry & Company can assist with evaluating your company’s inventory practices through our proprietary inventory assessment process. Contact us today to learn more about managing inventory profitably.

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Internal Scorecards for Merchants and Inventory Buyers

Brian Barry — Mon, 20 Jul 2009 17:40:07 +0000

Every day, companies evaluate a merchandise vendor’s performance against goals and their worth to the company through a vendor scorecard, such as:

§ How many backorders were caused by the vendor?

§ What are the gross sales for the vendor?

§ How many RTV’s or defective products for the vendor?

§ How many early deliveries and late deliveries for the vendor?

§ What is the overall net contribution to profit for the vendor after all expenses?

But how often do you set the same goals and objectives for your merchants and inventory managers and create an internal scorecard? Often times we find that companies have rigid standards for their vendors and goals in terms of margin and profit, but often times they don’t measure their staff in a similar way. By not doing so, you leave the door open for problems that could erode your margin.

Develop a similar list of metrics that are important to your business. Convey your goals to each person and measure the actual performance against their individual goals. What are some that companies use?

Category sales
Gross margin and percent
Return percent
Cancellation percent
Adherence to vendor compliance
Turnover
Vendor coop
Net contribution to profit
“Markdowns”

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Merchandising and cost of backorders

Brian Barry — Fri, 17 Jul 2009 14:46:03 +0000

The other day we worked with a mid-sized gift marketer to have them analyze their Spring book and web campaigns from a price range perspective. They had never done this and were surprised to find that 39% of their SKU’s were $25 and under – the average price point in this group was actually $11.15. This group of SKU’s represented 32% of the gross sales but only had a 44% gross margin which meant that on average they were only earning $4.91 per SKU. After allocating marketing expenses, operational costs and general and administrative costs – each of these SKU’s lost over $10.00 each time they were ordered. What made the situation worse is that this price point also represented around 59% of the total backorders. With their cost of processing a backordered unit being around $12 this made the loss even greater – more like $22.

This company is now working to develop a strategic merchandise plan to improve the average price points over time. Something that cannot be done overnight or you will alienate the existing customer base. In addition they have opted to avoid taking backorders on low dollar and low margin products to avoid the additional costs. You could also decide if the items are essential to customer service to order larger quantities.

It is extremely important for companies to analyze merchandising results, taking in to account not only whether or not an item covered the marketing expense, but also the cost to take and process orders and the general and administrative expenses. By doing this you essentially create a P&L at the item level as well as the sub-category and category level. This allows you to truly understand what your best sellers are and whether or not they are delivering positive dollars to the bottom line. Use this same model of analyzing profitability and sort the products by price ranges and I am sure you will find some interesting trends. Review this on a regular basis and make changes accordingly.

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Inventory turns and age of inventory

Brian Barry — Fri, 17 Jul 2009 14:37:55 +0000

In working with a client the other day, we were analyzing several inventory KPI’s. Their goal was to turn the inventory at least 4 times annually, up from the 3.15 turns they are doing today. We then talked about how long they carried inventory before they deemed it to be “aged” or beginning to get old. Their response to this question was 20 weeks.

This is a classic example of where most small to mid-size companies are from an inventory management perspective and using KPI’s. In the above case, by choosing to focus in on inventory as it hits 20 weeks on the average and older you are really aiming to only do 2.6 turns annually. Take 52 weeks in a year and divide it by the age in weeks that you deem “aged”, in this case 20 weeks and you get 2.6 turns annually.

In order for this client to be hitting 4 turns annually, they need to be concerned with inventory as it hits 11-13 weeks in age and develop a strategy to move the inventory to achieve their goals. It is important for companies to develop the long term strategies followed up by the actions or tactics to achieve those goals. It is also important to understand the goals, agree to how they will be measured and report on them regularly.

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BI systems across the enterprise

Curt Barry — Fri, 29 May 2009 14:27:09 +0000

The most serious business information problem companies face is finding a “single version of the truth.” Many companies are installing best-of-breed systems for order management, fulfillment, call center, marketing, product information, inventory, finance and e-commerce.

Yet no one vendor in the marketplace today can provide more than two of the best-of-breed components needed. Even most ERP systems available to direct marketers don’t provide specialized direct, retail or warehouse management functions that are as good as best-of-breed.

Such systems have given companies access to the best system functionally for end users. But even when they are integrated with one another, you still have numerous – and differing – occurrences of key data and metrics.

The result of all these silos of information is that no one system provides more than 30% of the data needed by senior management; for larger companies it may be only 10% to 15%.

Top managers have to request that department heads pull data with spreadsheets, use access databases, or ask business analysts to come up with reporting. These manual efforts mean management’s reporting depends on delay-riddled, error-prone processes.

What’s more, valuable productivity and service data exist in systems to which management may not have access or of which they may not be end users, such as telephone switches (ACDs) and e-commerce analytic systems. And with database structures and languages that can span 25 years of systems development, data often doesn’t reconcile from one information system to another.

Simply put, these systems and data flows can’t deliver the single version of the truth you need. Management faces the question: On which version of the data should we base our decisions?

Dashboards, metrics, alerts

Business intelligence (BI) solutions with dashboards and executive analytics can, potentially, solve this problem. By creating standardized and normalized databases that sit on top of your best-of-breed systems across the enterprise, those databases open up huge possibilities for management to sharpen critical decision-making.

You must also select a single, common version of data that is available in each best-of-breed system. Executives will, ideally, be able to select key metrics that can then be set up on a desktop, laptop or PDA for real-time monitoring of areas for which they are accountable.

In fulfillment, this may include orders shipped, orders carried over, productivity by department, or labor costs. Merchandising may want to see performance against the sales plan, top-50 selling products, products that are running low on inventory, or slow sellers that are potential candidates for liquidation. And marketing is likely to want all the current promotions and their sales and percent completion to plan, results from e-commerce analytics, and so on.

More than simply extracting data, such solutions allow management at various levels to set up actionable key performance indicator (KPI) alerts that proactively notify the executive when “dials” indicate a variance from an acceptable range or, conversely, extremely high performance.

Another feature of such BI systems is the ability for executives to drill down into the details that are the basis for their dashboard dials and alerts. So for an inventory control manager who has a dial for excess aged inventory, the drill-down would show all the key item-level inventory statistics for slow selling products with excess inventory.

Think for a minute: What data do you want to gain access to across your business? What information do you need, as a member of senior management, to run the business?

The key results and metrics a company president may want to be able to view regularly on a personal dashboard would include demand to net sales; call center, fulfillment, marketing, inventory and finance. Much of this is not found in any single information system. A number of the analyses and KPIs are created by including data mixed and matched between information systems.

The personal dashboard shown on page 54 represents a drill-down into each of the six core areas. The chart “Source data across the enterprise,” shown above, shows the best-of-breed system, independent system or spreadsheet from which the source data is drawn and in which the drill-down occurs.

One of the key benefits is that management can align the analysis and reporting with their short- and long-term strategy. It’s not just about reporting, but about achieving improved performance management and profitability of your business.

Many views, one set of data

Whether you are analyzing inventory levels or fill rates, demand or sales, the new BI tools ensure all departments are using a standardized view of the same data. Such BI systems also allow users to take cuts of the data and compare them in multiple ways, including this year to last year or actual to plan, as well as to reassemble the data and analyze it from one department to another.

Each department needs to maintain its own way of analyzing data, but also be able to bring its plans and results together in a consistent, uniform way.

Here’s an example of an advantage provided by the access to uniform data that these BI solutions allow. Merchandising, marketing and inventory control may have different information needs during the product and promotion life cycle, but they all revolve around gross demand planning and results.

Merchandising wants to know the sales trends and the quantity of each product that is needed across all promotions and channels – print, e-commerce and store. Marketing arrives at the catalog gross demand plan based on their circulation plans by drop, by house file, and by outside list segment.

Merchandising’s catalog preseason plans are built top-down by merchandise category, and bottom-up by product – but they should come close to tying together with marketing’s demand plans at the demand level.

It’s inventory control’s job to interpret the plans and selling results and purchase product far enough in advance to be in stock when customers order. But management allows inventory control to purchase more product than the demand plans indicate, based on vendor lead time, vendor discounts offered, etc. – so they aren’t going to tie back to the others’ plans exactly.

Week-for-week, it’s hard to read selling trends and interpret them in a way that allows you to make the right decisions across the enterprise. The key departments above, along with the call center and fulfillment center, all benefit by sharing the latest sales plans and selling trends. BI solutions that can bring about the single version of the truth help keep everyone on the same page.

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“SORRY FOR THE DELAY – THANK YOU FOR WAITING”

Curt Barry — Wed, 20 May 2009 15:05:54 +0000

I just had a pleasant experience with a back order from L.L. Bean. How can you have a good experience with something that’s been on backorder for 6 weeks? Well let me tell how.

First the background. On April 1^st, I ordered 5 pairs of chino pants and 1 was on backorder. The CSR told me immediately that the color would not ship until May 15, six (6) weeks later! I liked the color and the price so I let it remain on backorder.

Well guess what? The 4 other pairs came in 2 days shipped for free on my L.L. Bean card and express delivery which is standard. And the back order arrived before May 15^th much to my surprise-I’d forgotten it. Who hasn’t had nothing but disappoint with projecting back order dates arrivals?

But even as important, I found something of real interest printed on the backorder’s order/packing slip. On the line above the item was this message:

“SORRY FOR THE DELAY – THANK YOU FOR WAITING”

It struck me, how many times do we thank customer’s for their patience when we disappoint them? And better yet, how many times do we follow through with the promises we make on backorders? But then, that’s why I always use L.L. Bean as one of the standard bear’s for high customer service.

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Ways to Save Money

Curt Barry — Mon, 11 May 2009 15:30:48 +0000

The following is a brief email that we received from one of our eNewsletter readers, in response to an article we wrote about saving money in your company…

Curt:

Just received your electronic May newsletter and wanted to send you some ways we are saving money.

Cut utility usage
Drop non productive associates
Reduce fulfillment goals from 92% to 85%
Keep 15% of your OTB in your back pocket
Only mail your best customers ( we are thinking of prospecting again this summer )
Drop marginal books
Flow inventory, more smaller orders, more frequently.
Keep margins high, but salt the assortment with redlines for the illusion of markdown.
Offer free personalization instead of a mark down.

We are actually making money on a reduced sales plan.

Hank

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F. Curtis Barry & Company » Marketing & Merchandising

Shopping Cart Abandonment, A Consumer’s Advantage?

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