Best Seller Gone Bad

Electronic keyboards were expensive in the 80’s and early 90’s, especially good ones.  Then came Casio, and the whole business changed.  At HSN, we loved the electronic keyboard business.

The category was made for TV shopping – the demonstrations were killer, and with all the new-fangled automation on board, “anybody can play the keyboard”.  In HSN language, “keyboards screamed” and you always got a call center “whoosh” – the sound you hear when inbound calls ramp from 100 to 1000 in 30 seconds.

So I’m talking with the keys merchant, and he says they’re having a supply disruption, and there will be challenges keeping the keys in stock because they sell so well.  This is a problem for me, because I’m publishing the monthly customer (offline) magazine and we’ve got some layouts and articles on the product.

I ask for a simple merchandising run on the SKUs to get a feeling for product in pipeline, to see if maybe I have to kill the spread.  We’ve sold 45,000 of the little beggars, which is pretty good for (what was then) a $500+ item.  It averages about $1,000 a minute in Margin, which is great versus network overhead cost of $300 per minute.

Problem is, we’ve only ever purchased 17,000 of them.

That’s right.  Each unit has been sold an average of 2.7 times.  These boards come back so fast from customers they’re always in stock, despite the “supply disruption”.

Now, from an Advertising perspective, I could ignore this little tidbit and just run the layout in the magazine.  You know, create “Demand”, to hell with the customer service / experience issues created by a product like this.

But from a Marketing perspective, I just can’t do it.

I’m in charge of Customer Marketing, for crying out loud.

I don’t need to run an analysis to figure out the customer value destruction going on here, the risk versus reward.  I can just see it.

I’d bet 30% of the current customers that buy this board never buy another product from us.  I’d bet 95% of the new customers buying this product never buy again.  Products like this kill the Customer Metrics I care about – % 1x buyers (down is good), %  Customers Active (up is good), Net Annual Value (up is good).

That’s just the customer economics.

Then you have the fact it costs $20 to process a returned product like this one – they’re heavy and packaged for retail, not for shipping; a lot of them probably come back damaged (I find out later this is the Root Cause of the Return problem).  Add in the calls to customer service at $3 a pop, probably 3 or 4 of them per customer.

Then you have the air time, the opportunity cost of not selling something else during the time you’re selling the keys.  In other words, every minute this keyboard is on the air I’m losing money, because virtually every one of those sales will be a return.  

So total, you have the “cost” of profit given up because I’m not selling another product plus all the ops costs in returns processing and customer service from above.  Stupid, from a Marketing perspective.

I will catch grief for killing the keyboard spread, but I’m going to kill it.

There is no way I’m going to be a party to what clearly is a customer value-wasting exercise, not to mention a complete waste of operational resources.  The merchant is going to scream bloody murder about “no support for my product”, and I’m going to end up in the head merchant’s office with my boss on fire, all that.

Screw them, I’m not going to run it.  I’ll show up with the numbers, and we’ll see just how far they want to take this.  Let’s trot right on up to the Boardroom and see how they feel about a merchant and a merchant’s boss who didn’t know (I guess?) they’d sold almost 3x as many units as they had ever owned.

That’s the difference between Marketing and Advertising.  Advertising people walk around claiming “I’m not responsible for what happens after the conversion” or worse, “after the click”.  Marketing people have a larger Company or more Strategic view of the world.

Do you know the Return Rates of your “best sellers”?  Are you wasting precious resources promoting a product that is not as profitable as everybody thinks it is?

Are you are Marketer, or are you really just all about Advertising?

 

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5 thoughts on “Best Seller Gone Bad

  1. I couldn’t agree more. There is a huge disconnect between Marketing and Sales or as you put is Advertising and Marketing. Too many companies run promotions or specials just to get the numbers up but in the ong run you end up having the customer service staff or sales staff responsible for “cleaning up the mess.” This shows lack of communication between the divisions of the company.
    Marketing needs to be redefined as finding and attracting POTENTIAL New Cusotmers to your business. Sales need to be redefined as turning those potential cusomters into established cutomers. This way someone has responsibily for the customer cycle. The customer can then be properly taken care of and not just left in limbo. Also this will eliminate pointing fingers at some other division’s srew up.
    Communication and responsibility within a company needs to be better defined. The customer needs to be put first because the customer IS your company. Without your cusomters you have nothing.
    http://theoctopussolution.blogspot.com/

  2. I’m a marketer.

    Marketing involves examining the lifecycle and being really smart about it. There’s so much hype over this white whale called “CRM”, and it’s to the point where I don’t even want to call it CRM anymore. I’d much rather call it lifecycle management or lifecycle optimization or lifecycle hummingbird than call it CRM.

    Novo’s pioneering work around lifecycle management – doing it in a spreadsheet, was really inspiring. Most businesses don’t have more than 65000 customers and 256 pieces of data on them. I took some of his techniques and applied them to SPSS syntax for more rows, columns, and ease of advanced analysis. The universality of the approach is just awesome.

    I get excited when I read very elegant, well explained blog post on the topic.

    So I’ll pass the question along: are you a marketer or an advertiser?

  3. An *excellent* post Jim. On many levels!
    I especially like the subtle play on tactical/immediate gratification vs strategic/long term payoff.

    Cheers!

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