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"Once you hit the level of trusted advisor, you are in the breakaway pack." Allison Hartsoe
Key Concepts: Customer Lifetime Value, Marketing, Digital Data, Customer Centricity, Long-Term Customer Value, Marketing Leaders, Analytics, Creativity, Product Development, Audience Research
Who Should Listen: CAOs, CCOs, CSOs, CDOs, Digital Marketers, Business Analysts, C-suite professionals, Entrepreneurs, eCommerce, Data Scientists, Analysts, CMOs, Customer Insights Leaders, CX Analysts, Data Services Leaders, Data Insights Leaders, SVPs or VPs of Marketing or Digital Marketing, SVPs or VPs of Customer Success, Customer Advocates, Product Managers, Product Developers
Allison Hartsoe: [00:01] This is the Customer Equity Accelerator. If you are a marketing executive who wants to deliver bottom-line impact by identifying and connecting with revenue generating customers, then this is the show for you. I'm your host, Allison Hartsoe, CEO of Ambition Data. Each week I bring you the leaders behind the customer-centric revolution who share their expert advice. Are you ready to accelerate? Then let's go! Welcome everyone. In today's show, I'm going to tell you about the most important takeaways that I heard at the big retail trade show. Etail West. I won't be talking about vendors in this show since I summarized many of my favorites in the last show. So today is all about big ideas, hearing the signal and all of that, blah, blah, blah, blah, blah. Incidentally, my chief of staff was at the show with me, and she's the amazing person who posts and promotes all of these podcasts, and when I asked her what she got out of this event, she said, well, it was also basic.
Allison Hartsoe: [01:10] No one talked about how they do it, and that kicked off a very interesting but brief conversation about why this was the case. So I asked her, do you think it's because retailers might be afraid of the competition and the audience? And she said yes, that could be part of it. What about the fact that so many panels are sponsored by vendors, and then she said yes, I think that's more the case, and I have to agree. I've been on the Internet speaking circuit for literally 20 years now, and that's because I started when I was nine, and most of the larger shows have become like Moneyball for vendors. If you want a booth, pay x, if you want to put people in it, pay Y, if you want to pass up material, pay Z. Now I'm exaggerating, but only a little bit. The point is that shows organizers oftentimes, and this show is the case, they don't evaluate speakers, but they do aggressively sign up more vendors for the next event.
Allison Hartsoe: [02:10] And I think that's symptomatic of a little bit where their head is. Now we know that's not customer-centric is it? And we all know what happens to companies that aren't customer-centric in the 21st century. And so while we wait for Carmy to kick in, let's dive into the Midi tidbits, which were part of Etail West 2019. Hands down, my favorite presentation at the show was Greg Ravel, who is the CMO of Kohls. The overall philosophy of Kohl's is convenient none mall locations which are close to the customer. They stand on brand, value, and convenience. They've been around since the 1960s, but around 2012 they hit a wall, which I don't find ironic because if you follow my presentations, you'll know that I talk about this shift in the customer equity, which happened around 2007, 2008, so naturally around 2012 I could see they and many other companies notice something was fundamentally different in their business model, and sure enough at 2012 growth stopped for them and by 2014 they had a new executive team.
Allison Hartsoe: [03:25] Again, similar to other stories, particularly electronic arts is what I'm thinking of. So this new executive team put together a strategic framework with a renewed purpose. Now they have a huge customer database, 60 million known customers, which is about half the less shops calls once a year. They say they're very strong in customer engagement. But Greg did that to find what this was. He did talk about Kohl's cash being very sticky. In fact, he went so far as to say that Kohl's cash was marketing dynamite, and I can completely understand why, but if we look at the situation they were in as recently as last year, 11,445 retail stores closed last year, but they're not closing. All their stores are profitable, and they actually put a store closure initiative out there, which was designed to activate local marketing to pick up customers when other retailers close. Wow! So local company, Sears closes, and you type in, where's my local Sears?
Allison Hartsoe: [04:36] Suddenly it's not there, but you get an ad for Kohl's, or maybe you get a Google map placement, a Google map add for Kohl's, and all of a sudden it's, oh, I can go to Kohls instead. What a great way to pick up business. I was impressed at their strategy and their creativity, and their sales are up for five quarters now. Now, incidentally today Kohl's is releasing earnings but so is Target, and both of them are releasing before the bell, so they're probably out as I record this, but Target is getting hammered for a decrease in profitability. There up in growth and they're fighting Walmart, and they're fighting Amazon of course, but their margins are going down, down, down, down. Kohl's doesn't seem to be in that same place. We'll see what it says when they release, but the fact that they're saying their stores are profitable, and Target not, saying this could be a very interesting point between a company that is actively customer-centric and a company that is just trying to promote themselves to increase business.
Allison Hartsoe: [05:41] Now I don't know that for sure, that's just a hypothesis, but back to Kohl's, they have a real sense of clarity in three areas around the customer. Their segments all have this in common. They appreciate value. They shop for themselves and their families, and they demand quality and style. Greg said they have six cohorts across the US. They often think about who is the future customer compared to the classic loyalist, which might be a slightly older mom and more, and they were specific to say it wasn't just moms. Now they don't want to sacrifice their own needs to their family. They want to get more and do more. Now I can validate this because I actually was not a Kohl's shopper before I had kids and moved to the suburbs, and then, sure enough, it was so handy to be in a store that was small, and I wouldn't lose my kids in the store, and also had things like toys and house goods and clothing, and everything kind of mixed in this nice tidy box, and nice pieces too.
Allison Hartsoe: [06:44] So I can relate to this from a personal point of view, but I can also tell you that they used to hand out these paper Kohl's cash coupons, and I would never use them because I would lose track of them. So I was really impressed with the fact that Kohl's cash has moved to the APP to make tracking those Kohl's cash dollars more easy. Now, we talked about three areas of the customer. Uh, that was the first one, the second one that they went after. So the first one was they started to understand their cohorts across the US, and he didn't go deep into every single cohort. But second, he talked about clarity in the value proposition. Brands like Nike and Vera Wang and Lego make great products, and they help them fresh in the portfolio for what's in those small stores. And the stores aren't teeny tiny, but they are compact.
Allison Hartsoe: [07:38] And so I can imagine that what they put in those stores is very carefully curated and selected. They talked about including plus sizes and pop sugar digital lifestyle for millennial women. And they talked about a collaboration with pop sugar on social data and design in order to develop sharper products, not innovative. You know, they're pulling on brands that have great reputations and creating this nice joint marketing structure that's not rocket science. But very interesting. Third, they talked about brand position and how they sought to reward the every day. So after their executives came in, they got all this clarity on the customer, and they basically went after them in three different ways. They're going to clarify the value prop, clarify the brand position, and clarify who is the customer in the first place. So once they had that in place, then they went after personalization. That is the primary way they seek to differentiate, and they hit it in four different ways.
Allison Hartsoe: [08:39] They hit it through customer expectations, the emotional connection, differentiation, and ROI. He was the first to say that personalization is expensive and hard to do, but they have good resources, and he's referring to good technical resources here to apply to the problem. And the fact that it requires a lot of data. He said they had actively moved from data subsets to data supersets and that means they have a lot of information on styles and preferences in the US. That's not uncommon for large leaders to augment the data streams they have. It's, in fact, one of the number one thing stitch fix does that keeps them in the lead. So when they retire, yet they're using everything they could know about the person, not just some narrow bit like you've viewed the page. Then Greg also talked about team organizations, and this is incredibly important.
Allison Hartsoe: [09:35] We see this in the main change for companies that are moving up into the leadership zone. These team organizations are now crossfunctional that KPIs are sales aligned, and everyone is aligned around the customer, And the sales that they're generating. Um, so that they run, they actually operate P and L on the customer level. That means that they understand how profitable their stores are, but there are going deeper to understand the customer makeup within those stories and how often they're buying, what are their buying cycles, and how fast are they getting the product onto the floor. He talked about speed and agility, particularly around iterative cycles, and I'm pretty sure he was referring to fashion cycles or supply chain cycles here where they were at nine months, and now they're down to month to month in a very agile process. And most important, they embedded tech into the cross-functional teams in order to support the groups.
Allison Hartsoe: [10:36] Tech is not sitting by itself in some silo. They are avidly actively drawing on their tech teams, and we've seen that for years. I think there was an IBM study out must be at least five years ago now where they talked about the leaders in marketing. We're actively partnering with their tech teams such that companies that did had a 73% chance of success greater than those who didn't. So now for the future, they're talking about moving from a channel-centric to more of a customer-centric outfitting model. And I love this idea because I always think it's burdensome to try to pick six different pieces, and determine if they match, and so they're thinking about using machine learning to help pick out outfits for you better and faster. That is a perfect example of looking for ways to be of service to the customer.
Allison Hartsoe: [11:31] How can I save you time? How can I help? And I just love this. So for Kohl's, the future is AI. In marketing, he literally said it's real. It's an increase in automation. It's a deeper understanding of customer preferences. It's new dimensions that fit into the data. And ultimately that plus the cross-functional approach of the organization is the key to making it work. As always, marketing and tech have to work closely together, and when you get that you start getting greater speed and, and he left on the note of speed versus perfection. They're investing in throughput, which is the ability to test multiple experiences at speed and then execute or stand on the learnings that they receive from those executions, particularly around digital optimizations. He referred to the homepage. And said that it's not just a homepage that they optimize, but the entire site, what combinations are most effective?
Allison Hartsoe: [12:33] How can they gamify learning? And of course, how can they help you construct an outfit, maybe use a quiz which helps deepen your user profile. Oh, really great strategies that they are using to fire on all thrusters to not just be a leading company, but to be the leader in their space. So go Kohls. Great job. And certainly, Greg, if you're listening to the show, I would love to have you on to talk a little bit more about your customer-centric strategies. Next up, we had a venture capital panel, and this was hands down awesome. There were actually three women on the panel, three bright, well-spoken, smart women that were commenting about the state of the retail industry. Richard Custom Bom from Forbes was the moderator. And then we had Robin Lee from GGV capital, Lisa Wu at northwest ventures, Sonya Nager at Pritzker group, and Jason Stofer, who is a partner at Maveron.
Allison Hartsoe: [13:38] Now all of these folks were fantastic, and Richard did a fantastic job of asking them the right questions about what was happening in the retail space. So the name of the panel was what's hot and what's not in retail. Now the conversation in this panel went so fast, I can't quite attribute each comment to an individual person, but I'll give you the general gist of what they were talking about, and the questions that were being asked. So for example, Richard started out with, what's interesting now, and the comment that came back from the VCs was, it's easier to scale now than ever before, and they are particularly looking for replenishment models like subscription boxes that you don't have to acquire new customers each month. I think the cat's been out of the bag on that one for quite some time now, but they also mentioned things like Casper, which has obviously a high average order value, but it's not like you go and buy a mattress every day.
Allison Hartsoe: [14:40] So they're also looking for brands that have high margins that can be plowed back into acquisition, and perhaps that are coupling that high margin with ways of building a community or selling incremental products along the way to help increase the cadence of that purchase and the engagement with the brand. They were clear that you still need an Amazon strategy for your brand, and possibly an offline presence. And it almost sounded like you need to do everything well, but they came down to one point, which is that the unique acquisition advantage was something that the venture capitalists are obviously looking for. It's not just about Facebook because Facebook has become more difficult and expensive. What is it that gets people to engage and Hook into your brand long term? Then Richard asked about community building, and that kicked off a conversation about next-generation marketing places.
Allison Hartsoe: [15:39] How can you reinvent QVC, get that strong loyalty, that strong base. It's something that they're definitely keeping an eye out or looking for. They talked a lot about social commerce, and Poshmark users are spending 40 minutes a day on the platform. They're looking at e-commerce systems that are powering those payments and cross border payments and shipments. In the past years, companies would hire a branding agency, analyze the market and then pour in money, but branding has been lost. Now, these are their words, not mine, and they talk about the fact that the value-driven brand or the value of a brand is when it becomes part of a customer's life. Like Allbirds or Everlane, and this is what we often talk about on this show where there's such a bonding to the brand because the brand stands for something that the customer identifies with, and in this case, they're seeing that customers come organically, and behave as replenishment customers, whether they are or not.
Allison Hartsoe: [16:44] Now they're saying that it's easy to push products and create that emotional connection. I actually don't think that's easy to do, but they're looking for, do you have an unfair way to create this? It's really hard to create it out of nothing unless you're a Kardashian, but a great example of a brand that has created it is Peloton for their sense of community. Then the moderator asked about physical stores and how they might be reinvented, and the conversation went to five to 10 years ago stores where basically a liability, a downside until bonobos introduced the guide shop and, that alone is a really interesting tidbit just because it calls out that this conventional knowledge that people often times believe is true is really just a hypothesis until somebody else proves it wrong or tell somebody reinvents a new way to think about it. So they talked about the marketing channel of the store as a more effective tool for acquisition, and that everyone needs an omnichannel strategy.
Allison Hartsoe: [17:48] Now, both online and offline's a, they talked specifically about Kendra Scott Stores that were used to build community, host an event, and even donate a percentage of their sales to charity. Kendra Scott's now a billion-dollar brand, which is huge. That's a fast moving brand for a jewelry brand that hasn't been out there all that long. They also expressed that there's online lift when you have a retail store. So using the store as an instagrammable moment, and one of the VCs actually cited Winky Lux, which we've had on the show, and Kate talked specifically about the instagramable moments within the store and how they connected to brands. If you haven't heard that episode, do listen to Kate, she's got it dialed in. And so the millennial consumer wants to be met where they are. They want to interact some, they want delivery, they want to be able to reach you offline and online, but the attribution of all these different experiences, all these different channels is still very hard.
Allison Hartsoe: [18:52] Next, the moderator asked about trends for investment. What are they using to screen different companies, and the VC said that they're paying attention to the brand's ability to create news through partnerships and content, and they're specifically keeping an eye on the percentage of organic traffic. They threw out a 60% goal for organic, non paid channel traffic, but I've got to take issue with that. I understand what they're looking for but there is so much noise, and that organic traffic, you know, did you filter out your IPs? Are you getting hit or hammered by bots coming in from China or Russia? I mean it's just, it is a very noisy number, but you know, perhaps that's just the big thing that they're looking for in order to understand how much is paid search traffic that you're having to do the heavy lifting coming in versus how much is customer love.
Allison Hartsoe: [19:50] And they actually went as far as to call it developing brand love, and they cited Canada goose and Montclair, and they said, what do you want in three to five years? Do you want to be a global brand? They need companies to become large. Now, I don't know that that necessarily is the route that every startup company wants to go after. But for the VCS, they're really looking for that global play. And they cited a couple of companies like red brochure that help people open up in China, and saying, are you building a business that customers love? It's easy to attract a thousand, but it's more expensive to gather a million and up. Love is what makes them stick. And I love the fact that these women were outspoken about the fact that customers who love you at which we oftentimes talk about on this show as your high-value customers or customers that are showing you a heavy signs of engagement, customers that are promoting your brand, that that love is actually what makes the customers stick long term, and something that they actively look for when they're making investments.
Allison Hartsoe: [21:03] Finally, he asked about how important is personalization, and the VCs responded with, are you personalizing a product or are you personalizing the flow? And I see this in this space too. Personalization is oftentimes just thought about as, Hey, I'm customizing an email but it's so much more, and there's so many areas of rich personalization, we almost need a better word for it. They had a small list of companies that are doing this well, stitch fix, Netflix, and the companies may or may not be there yet, but the need to understand the customers and segment then is much higher than in the past. It's easier to create a narrow brand with targeted audiences than a mass brand. And hands down they all said major turnoffs to them are companies that basically come in touting AI and machine learning as ways to solve customer needs. It's not about the right personalization algorithm. It's about connecting with customers.
Allison Hartsoe: [22:00] And Oh my gosh, I could not agree more. And they ended with, that you really can't go up against Amazon in certain categories that you're probably dead on arrival. And those are probably commodity categories. And in Ad Tech, uh, that's another dead segment to them. So the question they keep coming back to is how many times do you get the customer return? How often are they expressing that love for your brand, perhaps echoed through the continued repeat buying, the continued repeat sales? Now I have two quick stories. One from Mirror Rosenthal at Google, she runs machine learning for customer experience, and one from RBC analyst, Mark Mahaney, who is the managing director at the Internet sector of RBC capital markets. So let's start with Mira. She had this fantastic acronym that I actually hadn't seen before, and it's literally I W W I W W I W I, and it stands for I want what I want when I want it.
Allison Hartsoe: [23:07] And that's just perfect because that is the state of the consumer. And she said that this is often happening in Mobile and that Google was, of course, had shifted to be mobile first. She shared the story of how Google had changed, and how they had gone through this evolution of needing the right cloud platform to handle and unify all of their customer data across 7 billion users. And that was across all properties like Waze and Youtube, not just to mention the search engine. And in order to do that, they needed the right, but also a simplified technology. And I've heard this before through Bob page at eBay, where he talked about how hard it was for them to move data from system to system. The data becomes so large and unwieldy. You actually can't move it from place to place within a 24 hour period so that you can do the analysis on it.
Allison Hartsoe: [24:03] So they need computing power. And she expressed that retailers need to do this too. It's not just about having a marketing tool, but a tool to empower the entire business because customers expect that they're going to receive a fast and frictionless experience. She gave a couple of different examples which I thought were nice. I talked about Campbell's 1700 creatives that they were using to match the audience in real time. That's not a small lift to create 1700 different creatives. So you know they had some automation behind that, and as a result, they saw a 25% lift in recall and a 56% increase in sales, and Lowe's, it was another example that used new purchasing journeys with Google Lens to use for in-store navigation. So they're kind of creating an augmented reality to help fund people's way within the store. And Mirr went through a lot of different examples, but the bottom line was that she stressed the need that pulling together first-party data to understand your audiences and then meet them where they are and then help create campaigns or what different ways to communicate to them was the heart of what was driving these businesses.
Allison Hartsoe: [25:23] Obviously she's from Google, and the Google marketing cloud stack is a big driver behind that, but it, she makes a good point about consolidating the data, simplifying it, and having the right computer power behind it in order to understand and execute on the different ways that you can relate to your audiences. Now incidentally, just as an aside, a lot of the CDP platforms stand on these marketing clouds stacks. They stand on Amazon, or they stand on Google, and I think it's an interesting trend. One of my predictions for 2019 is that these cloud stacks are going to get more traction going directly to the retailer and that leaves the CDP space a little bit in blocks. So we'll see what happens there. It's too early to see, but it's a very interesting strategy that Google and Amazon, in particular, are going after when they're emphasizing their cloud marketing stack directly to retailers.
Allison Hartsoe: [26:26] And finally, RBC analyst, Mark Mahaney covers the Internet sector, and he talked about why Amazon's growth is sustainable. He's basically using a lot of outside information to reverse engineer or hack the Amazon strategy. He talked about Walmart gaining traction, Ebay fading, and Amazon consistently focuses on price, selection, and convenience. He said their prime penetration is huge. It's at 55%, and that is like oxygen for the company. Prime is basically the customer loyalty machine, and the longer people are on this program, the more they spend and the more frequently they spend. Sounds a little bit like Kohls cash, doesn't it? Now notice in both of these cases, these aren't just like loyalty programs where you get some points. These are programs that have deep engagement triggers, deep loyalty drivers behind them. That's really seeking to be of service to the customer. So he talked about Amazon's expedited shipping being the key to that, and the speed essentially creates a really deep moat around Amazon's businesses.
Allison Hartsoe: [27:42] 87% of sales though are still offline, and Amazon only makes up 3% of online sales, so there's still a huge distance to cover. Then he talked about the three big pillars of Amazon, Amazon web services, Amazon marketplace and prime. He speculated about what the fourth pillar would be. He said maybe groceries. Half of the US consumer spending is on groceries. It is the single biggest item in most budgets, and Amazon going after this space made a ton of sense, but AMS is the Amazon marketing services, so $8 billion in ad revenues this year. Less than 10% of Google. That represents a major growth area. Now that connects to what I just said about Google's marketing cloud. Amazon marketing services are in a similar vein, not exactly the same, but you can see between Amazon web services and Amazon marketing services. There's a real jockeying between Amazon and Google, not news, but for retailers, it's very interesting because could these be broader more powerful platforms maybe that you want to consider.
Allison Hartsoe: [29:00] Mark also said that prime video was seeing very high growth and shipping with Amazon was taking on Fedex and ups. Alexa is in 40% of Internet households, which is 30% of overall households, and he felt that Alexa was the Trojan horse for Amazon into the refrigerator that you could basically use that for your shopping list for delivery and marrying that with the Amazon go store allowed Amazon to tap into some very precise offline information as well as the online information. For example, in an Amazon go store, they know that for every minute in this store you spent $4 and 8 cents and when they help you save time, they can also help you buy the right products or position the right products on the store floor in the right way. I don't know about you, but I've certainly had the experience of going into stores and having to hunt and pack for different types of products that I don't know where they are, and sometimes I leave without that product because I can't find it, and I think we've all been there. So they know how much time it takes to get each product, and actually, they printed out on the receipt.
Allison Hartsoe: [30:16] So produce remains a challenge for them in the grocery space, but that is a challenge that he thinks is solvable. And finally, Mark used this phrase that I haven't been able to find anywhere else. He talked about a new trend. The physicist occasion I think is maybe how you could pronounce it. It's basically using data from the Internet space, from the digital space and reverse engineering. The physical space is basically how I would define it, and that this is what you see bonobos doing. It's what you see Amazon doing. It's what you see a lot of the leading retailers doing is taking all of that really good rich digital knowledge and powering the offline world with it. He says there's a real economic benefit in that and I couldn't agree more. So what should you take away from all these experts? Well, number one, customer, customer, customer, the customer's in control, and all your data had better be pointed to the customer.
Allison Hartsoe: [31:22] That doesn't mean channel reporting where the customer is buried somewhere inside. Number two, knowing exactly how much you can afford to spend to acquire customers is really the name of the game. When the same customers repeat, you can work out this math, and create a really beautiful sustainable business. Number three, companies who have high repeat rates learn fast how to build their tribes and their communities around more than just the next purchase. They become trusted advisors. They become that go to brand that is able to be of service to their customer base. And finally, once you hit that level of trusted advisor, you're in the breakaway pack, you are literally cornering the market around a group of people who love what you stand for and buy your products as a result. And that's where I personally think we have that beautiful advantage of companies, retailers benefiting by selling their products, but customers winning as well because it's not about product pushing, it's about customers and stores coming together to create a better convenience, a better speed, a better lifestyle, some type of improvement for the world to generally make the world a better place.
Allison Hartsoe: [32:43] I hate to sound trite that way, but at the same time that's what it is. It's this beautiful connection between retail saying we can help you, let us help you and here's our product along the way as opposed to buy, buy, buy, buy, buy, buy, buy, which is product, product, product without a real sense of the customer and what they need inside. So I love these trends. I love what these people are saying, and I'd like to send a special thank you to all the folks who spoke at e-tail. There were way too many sessions for me to attend, but I personally know how much effort goes into creating these speaking engagements, and I just want to thank these folks for standing up to share their ideas, ideas that make us all better, more customer-centric marketers in the end. Speaking of better marketing, if you want to talk more about how to make the switch from product centric to customer centric or to calculate your customer equity, to create customer data visualizations or roadmap to find your way, you can certainly reach me at email@example.com or at aheartsoe on Twitter or Alison Hartsoe at Linkedin.
Allison Hartsoe: [33:54] I'm always happy to help. As always, everything we discuss is at ambition data.com/podcast thank you for joining me today. Remember when you use your data effectively, you really can build customer equity. It's not magic. It's just a very specific journey that you can follow to get results.
Allison Hartsoe: [34:16] Thank you for joining today's show. This is your host, Alison Hartsoe, and I have two gifts for you. First, I've written a guide for the customer centric Cmo, which contains some of the best ideas from this podcast, and you can receive it right now. Simply text, ambitiondata, one word to, three, one, nine, nine, six, (31996) and after you get that white paper, you'll have the option for the second gift, which is to receive The Signal. Once a month. I put together a list of three to five things I've seen that represent customer equity signal not noise, and believe me, there's a lot of noise out there. Things I include could be smart tools. I've run across, articles I've shared cool statistics, or people and companies I think are making amazing progress as they build customer equity. I hope you enjoy the CMO guide and The Signal. See you next week on the Customer Equity Accelerator.