Lab Store: Panic Pack!

Lab Store, Marketing / Tech Interface

The average ecommerce / catalog packer can pack about 22 – 25 boxes an hour, depending on the level of automation.  Of course, we don’t have anything like traditional mail order automation in the Lab Store; just a computer, a printer and my wife Barb as Chief Packer & Chief Customer Officer.  I pitch in by assembling products and generally keeping the “warehouse” shelves stocked so the Chief can do her thing with the packages and customers.

For a variety of reasons we got a late start today packing the orders from over the weekend and New Year’s Eve / Day, and had to invoke a “Panic Pack” on these 131 orders.  A Panic Pack is a high speed affair where Barb picks all the orders but leaves some for me to pack (I suck at packing compared with her) while she packs the others.  We packed all 131 orders in 4 hours, just barely in time for UPS pickup.

UPS Receipt

That might not sound like a big deal versus the 25 boxes an hour, but remember we are also picking the orders and dealing with all the customer service – can you add this to my order, can you change my shipping method, etc.  Most packers simply pack an order that has already been picked for them, and don’t do any customer service.

131 packages

My point with this post is not that we know how to pack like banshees, but the enabling technology behind this capability.

It would have been impossible to pack and manage the service with this many orders in such a short time without a proper backend order management system – something I see many ecommerce folks go without.  Most web-based cart back-ends are incredibly difficult to deal with, especially on order changes.

In many web-based order processing systems, it can take multiple steps to make simple changes rather than just a few clicks – add another product to an order, run another credit card charge, reprint the packing slips, etc.  This is because once an order is processed, it’s not meant to be changed; order changes were not taken into account when these systems were designed.  Nobody talked to customer service to get specs, I guess…

“You mean customers might want to change an order they already placed?  Why?”  ‘Cause most of them are not geeks.  They make mistakes.  They forget stuff.

Often, when you call companies using these systems to add products to your order, they tell you “we can’t” and to go online and place another order.  Nice.  Great service.

We actually don’t mind if customers want to add to orders they have already placed with us – silly, huh?  Gee, you want to spend more money with us?  Sure, bring it on!  By the way, Flat Rate shipping encourages this behavior.

If you have a good backend system, you can just add the product and the software does the rest, because the order has not been “processed” yet as it has with web-based systems – you process the order right before you print the packing slips, including the credit card capture.  And, you can do all kinds of customization on the packing slip, like messaging for new customers, repeat customers, and so forth, and automatically interface with the shipping manifest system.

The labor cost savings alone when using these order management systems is huge.  When we moved from web-based “copy & paste” order management to local software, our time spent per order on customer service dropped by 50%.  This kind of gain in productivity is common, as you can see here.

And when you have more time to service each customer, you  can provide better, more customized service.  Simple as that.

Plus, our backend system creates one heck of a customer database, automatically consolidating orders at the customer level and providing one-click access to customer service history, cumulative sales, and so forth.  Whenever we are faced with a complex service issue, the first thing we do is look at the cumulative sales of the customer, and then we act accordingly.  In other words, for proven good customers, we bend the rules.  That’s how you build loyalty.

So you need a customer database to provide great service.  As far as Marketing goes, you need a customer database to measure the success of customer-centric programs like this one and this one.

If you don’t have a flexible and marketing friendly order management system, you really should consider getting one.  We use Stone Edge.

Marketing into a Downturn

Analytical Culture, DataBase Marketing, Driller Q & A, Newsletters

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

Q: I have been asked to create a whitepaper on marketing strategy and tactics for a down or recessionary market. In your studies and travels have you come across any literature or have thoughts of your own that I may quote?

A: Well, I suppose someone has written something about it somewhere. The trades write about it for every downturn! But I don’t know of any primary work on the topic – case studies, research, etc.

I do know that when we get into a down / recessionary market my phone rings more and I work a lot harder. The “new client” customer retention business is counter-cyclical; people always wake up during the soft times and say, “Hey, if we can’t drive new customer volume, maybe we can sell more to existing customers!”. You know, the CEO or somebody read that somewhere…

The problem with this kind of thinking is, in most cases, it’s already too late to do anything about customer retention.  That’s not something people generally want to hear. I then say, “The economy is cyclical.  Do you want to be prepared for the next downturn?”

The people who answer yes to that question will often become clients; those looking for the “quick fix” generally won’t become clients – but they call again into the next downturn…

It’s a strategy thing, you know? Long term thinking? But I digress…

The insidious thing about customer defection is that it’s always there, eroding the asset base, wasting away the hard work. But people don’t see it until the flow of new customers shrinks, and then all of a sudden, the defection issue is laid bare.

This is why the retention business is so counter-cyclical; why “discovery” comes in the downturns.

What you normally find is whatever business change / policy / product is causing customer defection, it takes as long to build up the customer asset again as it did to destroy it. Here is a real-world example.

A retailer makes a significant change in the types of products it sells, because it wants to “attract more new customers”. For existing customers, revenue per customer starts to fall. This fact is masked on the revenue side by the attraction of new customers to the new products – for a while. But it ends up these new customers, in terms of revenue per customer, have a value about 30% less than the old customers? So even though new customer adds remain consistent, sales start to drop, and over time drop by 30% as old customers defect and are replaced by the new customers worth 30% less.

Two years into this process, a downturn in the economy causes more attention and analysis of the customer base, and this issue is exposed. Surprise! The newer kind of customers defect at a higher rate and in a shorter time than the old type of customers.

New management is brought in, and they decide to go back to selling more of the “older” product to attract the higher value customer. Once they make the switch, it takes just as long for sales to get back to where they were as it did to create this problem in the first place – 2 (very long) years.

And that’s why it is so tough to deliver a “quick fix” to these kinds of problems. They are systemic in nature and because you are talking about the value of a customer over time, take time to fix.

So, it may well be that your advice should ultimately be “use this downturn to prepare for the next one”, if you know what I mean. Investigate, learn, and understand what happens this time, so you know what to do next time. In terms of action items, a few:

1. Analyze the customer base, to understand the source of customer value. Who are the best customers, where do they come from Which media, sales persons, product lines, services, geographies, etc. create the “best customers” for the business?

2. Analyze these best customers, and understand their behavior. What would be a warning sign that these best customers – who are probably responsible for the lion’s share of your profits – are cracking into the downturn? Slowdown in orders per month, average order size, number of contracts, whatever the relevant metrics are.

3. Track a handful of these customer metrics and see how they change as the economy slows. These metrics will be a map for predicting actual trouble the next time – predicting trouble even before everyone is already talking about “a downturn”. This gives you the extraordinary advantage of lead time over your competition in reacting to the downturn in business.

4. Complete the same 3 steps above for medium value customers and low value customers, if you have the resources.

5. Now, fully understanding what you have to work with (perhaps for the 1st time?), what is the strategy for a downturn?  Generally, it would consist of a reallocation of resources away from lower productivity to higher productivity activity, in order of importance:

a. For best customers, how do we keep them?
b. For mid value customers, how do we grow them?
c. For low value customers, how do we reduce costs to acquire or service them? Note I do not advocate “firing” customers, but you certainly can cut back on acquiring as many low value ones.

For each group, you should have a specific (and probably different) strategy and set of tactics. What a lot of folks don’t understand is there is almost always a truly remarkable difference between these customer groups, and any “one size fits all” edict or direction is bound to screw up the business, just like the example of the “new customer” effort from the retailer above.

For example, we know that marketing spend generally softens in a downturn. Companies cut back on marketing because they feel like they are “pushing on a string”. They cancel or don’t buy advertising, they fire salespeople. This is the wrong move. The old saw about buying more marketing into a downturn to “grab share” can also be the wrong move, though has some “accidental” positive effects.

The company should invest in more marketing, but not across the board. They should buy the right marketing, the marketing that generates the best quality customers.

They should reallocate marketing resources away from generating “c” customers towards generating “a” customers. If you know trade shows generate leads which turn into “a ” customers and online ads generate leads that turn into “c” customers, you take the money you spend online and book more trade shows. You let go of salespeople that generate “c” customers and use that salary to bonus salespeople generating “a” customers.

Of course, this analysis and planning is an exercise that should be done all the time, not just into a downturn. A business should always be trying to understand where customer value comes from and how it is created. But unfortunately, this issue most often comes up going into a downturn.

You’ll have to excuse me now, the phone is ringing again…

Jim

Get the book at Booklocker.com

Find Out Specifically What is in the Book

Learn Customer Marketing Concepts and Metrics (site article list)

Download the first 9 chapters of the Drilling Down book: PDF