“The problem with our business” the exec at a several hundred retail store chain said, as he forlornly stared down into his coffee cup “is that nothing about our business follows the 80/20 rule. We don’t have massively over-performing products, we don’t have massively over-performing stores, rather we just get a relatively even and incremental contribution from most products and most stores. You know…its not like we’ve got one store that does 20% of the sales, or some mega-hit products, and we can just pull levers around stand-out stores or products to increase revenues.’
And indeed he was correct, the data which he and his fellow execs had seen many times proved this was true and reinforced this belief. The retailer’s top selling product was responsible for less than 0.2% of the company’s revenue, and no store was responsible for massively disproportionate revenue.
The fact seemed to frustrate him, and I wished I could make his day by finding an over-performing store or product for him – but this not a story about making his day. Neither is it a story about whether a retailer is advantaged or disadvantaged by having an even contribution from products and stores versus more of an 80/20 distribution.
This is a story about how easy it is for even the brightest retailers to get lost in the product-centric mentality that pervades retailing the world over – while having no visibility as to what is going on in their business relative to the only true driver – their customers.
So I said watch this…entered two date ranges and clicked on a button, and watched a value segmentation model get built in less than 60 seconds. So did he.
This is what it looked like:
22% of this company’s customers delivered 57% of their revenue last year – you could have heard a pin drop. “We’ve never really seen the business through that lens before…” he stammered. It was like a light bulb had been switched on and the business could be viewed completely differently – his mind inspired with the levers that could indeed be pulled with this new found information.
So what is to be learned by retailers from this (true) story?
– Like it or not, you have been conditioned to think about products and stores – not customers. This is because retailers are organized around products, and retail information systems have been designed to make information flow in a product and store sort of way.
– The difference between an answer in two minutes and two weeks is the difference between bothering to ask the question or not. Traditionally building something like a value segmentation module is something you would ‘never try at home’ you would carefully and dutifully brief the insights team, or a consulting company, and it would get delivered back to you with significant ceremony on a powfer-point deck and you would study it with equally significant ceremony. —– Possibly you would day dream a little about how nice it would be to drill into it further, but be put off by the $2,000 to $20,000 invoice you received for the first piece of work.
– It is nice to have a framework built on best practices to think about these things through. The retailer didn’t ask the question, not because he wasn’t curious about his business, but more because it wasn’t clear to him that the question could or should be asked.
This is a multi-dimensional problem and solutions that solve it will need to be multi-dimensional. This illustrates probably one of the more exciting ways that cloud computing is going to touch just about everybody in business (certainly not just retail). There is a proliferation of cloud hosted solutions being built, tailored very specifically to given industries, which can handle computationally heavy processing, PhD levels of complexity, with best practices built in, that can be turned on virtually at will, and are available by monthly subscription.
In theory the last paragraph was techno-babble which should mean nothing to this particular retail exec, but in reality it meant he had a whole new way of viewing his business and accordingly an entirely new perspective on ways to grow it – which is quite a big deal.