My paternal grandmother, who was an International Grand Master at the card game Bridge, had a favorite expression that she occasionally offered when something really good happened at the card table: “Luck favors the skillful player.” I was reminded of this recently while having a chat with one of our customers, a retailer who’s had a series of poor years, but who was cheered by the prospects of a good Christmas Season. “Thank heavens, it’s finally December,” he said, after complaining about the lack of traffic and sales during the prior three months. I then commented on how my own forecast for December suggested that business in that month would turn around for him, and he replied, “well, it’s about time my luck changed, after the way things have been going.”
My role as a marketing statistician provides a unique perspective on the things that seem to drive our customers’ success (or lack thereof), and his comment got me to thinking about variables that might predict the relative “luckiness” of individual retailers in 2015. During the past several years, we’ve seen an interesting bifurcation in performance levels of the customers that we service. On the one hand, we have a group of customers who are still honestly reeling from the Great Recession. Their traffic is off, cash flow is problematic, margins are spiraling downwards, and I get this terrible sense that the difficulties they’re experiencing in their businesses are also diminishing their ability to enjoy their lives. Then there’s the other retailer group, whose sales are soaring, setting records in 2014, and for whom the world seems to offer a daily set of wonderful opportunities for exploration, discovery, and conquest. This group isn’t just succeeding; they’re having a great time being successful.
As I’ve tried to identify specific variables that would be predictive of which group a given retailer would fall into, I must confess that it’s been really difficult to find reliable causative factors at a macro level. Geography, annual sales volume, local economic conditions (including demographics), competitive factors… for quite some time, I have attempted to draw a causal link between overall business performance and a specific shared variable, unsuccessfully. But I had a little spare time over Thanksgiving week, and after my chat with the retailer that I recounted above, I resolved to take another stab at the problem. And in the course of so doing, I’ve had a “Eureka” moment that I think is worth exploring.
Let’s start with the fact that we have a pretty large customer base participating in our Christmas flyer programs, such that we printed over 10 million flyers this Fall. The flyers work really well, so our customer attrition rate from one Christmas to the next is essentially zero.
But we do have an interesting kind of disconnect that does occur each year, in which only about 70 percent of our Christmas flyer customers then follow through with a Valentine’s Day flyer. This has always surprised me, for two reasons. First, Valentine’s Day is the second largest jewelry gifting holiday, so why in the world wouldn’t you choose to promote the heck out of it? Second, we have this amazing promotion that we build into Valentine’s Day, in which our customers offer flowers, candy, and dinner at a nice restaurant as a gift tied to a jewelry purchase of just $99.
My friend Lyn Hoppe, one of the sharpest retailers on the planet, taught me how to do this cost effectively about 10 years ago, and it’s the closest thing to a Thermonuclear Marketing Weapon in the jewelry industry. Our average participant who aggressively promotes Valentine’s Day attracts about 250 new customers in five days with the promotion. Even better, it attracts precisely the right kind of customers: pre-bridal males. So while it’s hard to make money selling inexpensive items, the Valentine’s Day promotion establishes relationships with new customers who ultimately buy engagement rings, as a by-product producing the highest advertising return on investment of any promotional activity on our calendar. Yet 30 percent of the jewelers who run our Christmas flyers don’t run Valentine’s Day.
So on Thanksgiving, prior to consuming the turkey, I reviewed a list of about 300 of our Christmas flyer customers who I know pretty well personally, and categorized them into one of the two groups I mentioned above: Group A (the ones who are kicking butt), and Group B (the ones who by all appearances are getting their butts kicked). I then created two additional associations: Segment 1 (the retailers who participated in both our Christmas and Valentine’s Day programs last year), and Segment 2 (the retailers who chose to do Christmas only). I then compared the groups, looking for some meaningful clues in the data - and my jaw dropped, because the correlation between the two was almost exactly 100 percent. The Retailers in Segment 1, who do both flyers, are all members of Group A (the ones doing great), whereas the Retailers in Segment 2 (the ones who pass on Valentine’s Day) are all members of Group B (the ones whose businesses seem not to be thriving). What an interesting discovery!
I think we can draw two inferences from the correlation.
First, there’s a measurable direct impact on the sales of stores that are promoting heavily for Valentine’s Day. We know our typical customer is generating about 250 transactions (most with young pre-bridal males) during the five days, Feb. 10 - Feb. 14, and the purchases associated with the promotion typically average about $140 dollars (for an explanation of why the typical purchase level runs about 40 percent higher than the required purchase threshold of $99, please see my article “Probability and the Primate Brain” SJN May, 2012). The thirty five thousand dollars in sales that comes from these inexpensive gifts is nice, of course, but also recognize that we’ve measured a 5-7 percent purchase rate of engagement rings during the subsequent ten months by the group of men we attract at Valentine’s Day, so if we assume an average purchase level of $4,000, that’s a delayed bonus of an additional $50,000 during the balance of the year. So, we can safely attribute about $85,000 in sales to the year’s revenue stream of our Valentine’s Day participants, on average. Of course, no one’s getting wealthy on an extra $85,000 in sales. But that’s just the direct impact.
There are also two sets of indirect benefits that may be harder to measure, but nevertheless surely come into play. The first is the significant word of mouth that the retailer obtains when 250 potentially pre-bridal females show their friends what their boyfriends gave them for Valentine’s Day. Does it not seem reasonable to infer that upon reporting to her friends what she received, the name of the store where he bought it is probably also mentioned? And in the case of the 12-15 additional engagement ring sales, there’s no question that each recipient’s entire social circle will learn where it was purchased, because when a gal gets an engagement ring, she shows it to everyone she’s ever met in her entire life (which invariably induces two questions: How big is the diamond, and where did you get it?). And in this era of Social Media, it seems extremely reasonable to argue that this “fertilization” of her social circle leads inevitably to even more engagement ring sales.
The second inference comes from the fact that the decision of whether to heavily promote Valentine’s Day provides a window into the thought process of each retailer. Jewelers make lots of marketing decisions over the course of any given year that collectively determine the future trajectory of their businesses. I suspect that the unfortunate reasoning implicit in the decision not to promote Valentine’s Day manifests itself in other subsequent counterproductive decisions. The aggregated impact of those choices must, as a necessary consequence, deflect sales, market share, and profitability downwards, ultimately producing unsatisfactory results.
So, Grandma clearly was right. Luck does favor the skillful player. It follows that if you’re committed to making the most of the extraordinarily important opportunity that Valentine’s Day provides, I suspect you’re going to feel pretty “lucky” for the balance of 2015. If not, well, in a probabilistic sense, the data suggests that you won’t. The beauty of understanding the data is that you actually get to pick how “lucky” you’ll be.
By the way, I’ll be conducting a seminar on “How to Set Marketing Goals and Build Your Marketing Calendar” at the RJO Show in San Antonio on Saturday, January 24. I’ll then be conducting a seminar at the SJTA Show in Atlanta in March on “How to Improve the Effectiveness of your Bridal Marketing to Millennials.” If you’re attending either Show, I look forward to seeing you.