Lab Store: Year End Analysis

Some stats from the Lab Store (Background) for the year:

Processed 10,172 orders, up 3% from last year, despite a logistical problem in the business model we did not have control over (breeding of animals).  Fixed that, so should not be an issue going forward.  Merchandise Return Rate of .3% on dollars, which is quite low.

Returns cost money to process, imply negative Social feedback, and increase customer defection by creating poor experience.  We do everything we can up front to keep returns and other negative experiences from happening in the first place by screening products and actually taking action on customer feedback and analysis.  Often, we modify packaging, create our own instructions, or assemble products we know people will have trouble with.  More on this idea here: Marketing through Operations and Panic Pack!.

We retained between 75% – 87% of our best buyers depending on what time frame you use, and further improvement in these stats is pending test results.  More on this idea here: Frequent Buyer Analysis.

Ended with 12,218 (double opt-in, non-bouncing) newsletter subs acquired on our own site.  Many of these folks are “pipeline”, they are in learning mode.  The newsletter is strictly educational and does not include any discounts or promotions.  Articles we write often present ideas related to products we sell, and we do include product links, but no more than 2 per issue.  We don’t “force” people who buy from us to get the newsletter by automatically adding buyers to the list, though we do make them aware the newsletter exists in the e-mail order confirms and on packing slips if they want to sign up for it.

The primary idea driving the newsletter is conversion to 1st purchase, and the tone / approach sets up the next phase of customer management - 2nd purchase Marketing through Surprise and Delight.  AIDAS, baby.  More on this, see New Customer Kits.

Ended with 4317 units in stock, inventory turned 22.1 times this year – without ever stocking out.  More on this idea and why it’s important to the commerce business model here: Web Merchandising.

Our organic search coverage is quite good,  so we generally use PPC to “fill in” where our organic coverage is weak.  We don’t do “Brand” bidding because it doesn’t pay out; are people searching with your Brand because they don’t know it (um…?), or they just want to navigate to it?  More on these ideas here: Is Your PPC Incremental? 

Ad spend was 3.77% of sales, 96% of that on PPC, generating about 16% of orders.  Average cost per click 17 cents, average cost per new customer $15.87 versus an annual value (Gross Margin) of $184 on that same customer.  That’s printing money.  This cost is the AdWords number, we know it’s lower because some of the ads are driving offline conversions (telephone) that are not picked up by AdWords.

We could spend more on advertising, but we’re in the Productivity game, not the “bigger is better” game.  And the reality is, the Incremental Profits to be had with increased advertising over what we already get from Organic are small; 8 years of testing tell me that.  We’re not really interested in maximizing sales, we want to maximize Profit per Employee.  More on this Productivity idea and how it works here: Podcast Interview with Jim Novo (includes text version).

We do buy some highly targeted Display ads, mostly on topic-specific chatboards.  Spent $1100 for 126 orders, primarily new customers.  Much of that spend was during testing before the Display program was Optimized.  More on that here: AdSense Finally Works!

Close to half our orders on average shipped with our maintenance food product, a recurring sale.  This is up substantially from last year, meaning more folks are sticking with our diet.  How we discovered, analyzed, and implemented a super cheap repeat food buyer program is here: Managing Customer Experience.

Similar to our approach on advertising, we don’t actively “market ourselves” through Social Media; we understand the environment and facilitate best performance of the system.  We prefer to let the customers speak for themselves organically and for Search to do the rest.  In other words, we Optimize for Social internally not externally, with very high standards for Products and Service, and intervention as needed.  Basically, we try to prevent negative commentary from happening in the first place through superior operational monitoring and practices.  More on this idea here: Social for Business.

We do keep track of what’s going on in Social Media with Google Alerts, Addictomatic, and some other tools, and intervened on 2 board chats this year where people were spreading false information about us.  On the flip side, a competitor built several fake Social Review sites this year, with fake reviews of our business.  You can’t post to these sites, but people think they are real I guess, given what we’ve heard from customers.  We actually get converting traffic from the sites, even though our ratings suck compared to the competitor, who naturally has a (self-generated) ranking of 9.7 out of 10.

These same “Social” issues and events have been taking place on the chat boards ever since we started the business back in 2000.  We have always been “listening” and taking action when appropriate, so the current Social Media movement has not changed anything for us.

For those of you thinking “this Relationship Marketing approach could only work in a small business”, think again.  I used the same model when I was VP Marketing & Programming at HSN, with over $1 billion in annual sales and 5,000 employees.  Many large catalog (now hybrid with online) operations follow the same model.  If you’re looking for employees who know how to drive this customer value-centric bus, recruit from the big catalogs.  More on how to work this model in large companies here: Optimizing the Interface.

The technology changes, but the ideas fundamental to success in interactive commerce really don’t.  If you have a good grip on the right Strategy, each new wave of technology is just more of the same – people are people.  If each new technology wave feels like it’s a “Brand New idea”, that probably means you’re letting the Tactics drive the business model.  Develop or Revise your Strategy. 

If your Strategy is to be customer-centric, the above is a pretty good roadmap.  This approach really shines with interactive environments, and now would be a good time to get on with it!

You see, Interactive is different.

Twitter: @jimnovo


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