Posts tagged: strategy

The Monkey Cage Sessions

monkey throwingI’ve seen a lot of strategies and “solutions” fail over the years primarily because the solution was crafted before the problem addressed was thoroughly understood.

Many times, the strategy or solution was the result of a brainstorming session filled with type A personalities (me included) ready to make things happen.

You may be familiar with the type of session I’m referencing. Usually, there’s a guru consultant leading the charge. He separates the group into teams and gives them Post-It notes and colored sticker dots. “Write down as many ideas as you can in the next 20 minutes. Don’t think too much. Be creative! No idea is dumb. Stick your ideas on the wall. Now go!” After 20 minutes, a leader from each group presents their best ideas to the rest of the room. Then each person in the room is allowed to vote for maybe six of his or her favorite ideas using the colored sticker dots. A few people are assigned the winning ideas and off we go.

Those types of session frustrate me. I’m concerned there’s too much action, too many unspoken assumptions, and not nearly enough serious thinking.

Over the years, I’ve developed a problem solving technique that I’ve found to work a lot better. I call it the Monkey Cage Sessions. The technique is all about thoroughly identifying the problems from all angles before developing carefully considered, thoughtful and collaborative solutions.

It’s got an intentionally silly name because the process should be fun.

Here’s how it works:

Step 1 Define the problems.

We start by gathering a group of cross-functional people – ideally from different levels of the organization – together in a room to talk about the problem or problems we’re trying to solve. This could be as simple as enhancing a Careers page on the corporate website or as complicated as building a complete company strategic plan. It’s important to define the general scope of the problem, but it should be defined fairly loosely so as not to stifle the discussion.

The rules of the meeting are fairly simple. We only discuss problems. No solutions. This is a license to bitch. Let it be cathartic.

I usually stand at the whiteboard, marker in hand, and write down everything everyone says. There is no need to be overly structured here, and anything anyone says is legitimate. We throw it all at the wall and we’ll sort it out later.

Sometimes people want to debate whether or not something another person says is really a problem. If someone said it, it’s at least a perceived problem. It’s legitimate. Also, there is often an attempt to offer an explanation for why a problem exists. The explanation is covering for another problem, so that problem should be written down.

People are always tempted to offer solutions, even when they think they’re offering problems. For example, someone might say it’s a problem that we don’t have a content management system. Actually, a content management system might be the solution to a problem. What problem might a content management system solve? Beware of any problem statement that starts with “We need…” and be prepared to break down that need into the problems needing the solution.

Sometimes the problems offered up are very broad and vague. In those cases, it’s important to work with the group to dissect that broad problem into its component parts.

This first session generally uncovers a LOT of problems, but the problem is still usually not completely identified yet. Which leads to…

Step 2 Categorize the problems

While the chaotic approach of the first session works well to get an initial set of problem descriptions, it’s important to create some order in order to prepare for the problem solving stage. So Step 2 involves writing down all of the problems and sorting them into logical categories. I don’t have any pre-determined set of categories. Instead, I prefer to the let the problems listed dictate the categorization.

Step 3 – Widen the circle

We probably have a pretty good description of the problems now, but we’ve also still likely missed some. For Step 3 we send the typed and categorized list of problems to the original group as well as a widened circle of people. The original group will likely have thought of a couple more issues since the day of the meeting, and the new group of people will almost definitely add new problems to the list. Since this is the final stage of problem description, we want to give this step at least a few days to allow the team to think this through as completely as possible.

Step 4 – Develop the solutions

Finally, we can start solving the problems. Woo hoo!

Now it’s time to gather a subset of the original meeting to start working towards solutions. There should be at least a few days between Step 3 and Step 4. We want to give people some time to think over the full problem set. The group should enter the Step 4 meeting with at least some basic solution ideas. There is no need to come into the room with comprehensive solutions that solve every problem on the list, but the solutions considered should certainly attempt to solve as many problems as possible (without causing too many new problems).

I usually find that by this point many of the solutions are fairly obvious. But there should be good discussion about the relative merits of each suggested solution, and the solutions should be measured up against the problem list to determine how comprehensive they are.

I like to end the meeting by assigning people to lead each of the proposed solutions. Obviously, any suggested solution from this session will need to be fleshed out in a lot more detail, and the leader from this meeting is responsible for determining the viability and solution and then potentially leading the development and ultimate execution to completion.

Subsequent progress is then handled via a separate execution process.

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I’ve had very good luck over the years using this technique. Some of the primary benefits I’ve found are:

  1. Better understanding of the problems
    As the initial meeting wraps up, most people are inevitably feeling enlightened about the problem. They’ve outwardly expressed their own assumptions (which sometimes even they didn’t know they were making) and they’ve understood the perspectives and assumptions of others. They’ve seen the problem in an entirely new light.
  2. More comprehensive solutions
    The heightened understanding of the problem and the critically important time between steps to allow the team to be more thoughtful in their ideas. Those ideas are usually pretty all-encompassing solutions to start with, but the discussions in Step 4 lead the team to collectively choose the best of the best of the solutions offered.
  3. Better execution
    Solutions are nothing but fancy ideas until they’re executed. And poor execution can cause even the best ideas to fail. The process of fully defining the problems and sharing that work with wide circles of people is an incredibly important stage that sets the foundation for success in execution. When the execution team provides input in the process and understands the basis for the solution, they are far more supportive in the effort. They are also far more prepared to make the daily, detailed decisions that are often the difference between success and failure.

So, that’s the Monkey Cage Sessions. I hope you find it helpful. If you try implementing the process in your business, I’d love to hear how it goes.

What do you think? Would this process work in your organization? Have you ever used a similar process?


You ARE a technology company

In this day and age, pretty much every company is heavily dependent on technology to operate. But if you have an e-commerce operation (or really any sort of transaction website), you are a consumer technology company. The sooner we recognize and accept this fact, the sooner we can get on with leveraging it to our competitive advantage.

We often talk about focusing on our “core businesses” at the expense of everything else. At a conference I attended last week, I heard a number of speakers and attendees reference Amazon as a “technology company” as sort of a dismissal. They were basically saying, “Yes, Amazon has lots of great features and functionality and people rate their experience highly, but they’re a technology company. We’re retailers. We can’t compete on that level with them.” This type of statement draws the obvious retort: “So, then, on what level do you plan to compete?”

While Amazon does generate some revenue from selling technology services, the vast majority of their revenue comes from retailing products. Their financial statements look pretty much the same as most retailers (except they have much bigger numbers and growth rates). But Amazon and other pure play online retailers are not burdened with the type of legacy thinking that exists in a lot of multichannel retailers. They understand full well the value of creating a quality online experience, and they understand that technology is part of their core business.

Competing with Amazon is clearly very difficult for a variety of reasons (price being high on the list), but how many business elements can we abdicate to them before our very survival is at stake? Shifting our mindsets regarding our sites is one key way to claw back into the game.

Our websites are consumer software applications, in many ways like Microsoft Word or Quicken. And this means that online our business is technology.

People use our website applications to accomplish tasks like buying our products, learning more about our products or getting inspiration. Their perceptions about the quality of our applications can absolutely make the difference in whether or not they complete their tasks and whether or not they return to use our applications again.

And their perceptions of our brand can also be influenced by the quality of our site experiences. A study by ForeSee Results on the Internet Retailer Top 100 sites found that people who were satisfied with the online experience of a retailer were 44% more likely to purchase offline. That indicates significant value in making sure the website is a quality software experience.

Our websites are also an opportunity to differentiate from our competitors, particularly if we’re not selling proprietary products. If consumers can buy the same North Face jacket or Nikon camera from a variety of different retailers online, the quality of the online experience will be a contributing factor in the decision.

Let’s do what it takes to include the quality of our site experience in our value proposition.

Here are 3 ways to get started towards becoming a consumer technology company:

  1. Organization
    We will likely need to make organizational structure changes to support a consumer technology focus. I previously made a case for changes in E-commerce IT organization that goes into more detail, but suffice to say the technology strategy and the business strategy need to be not only aligned, but integrated.

    Furthermore, we need think about different types of roles. Software companies have product — not project — managers and product teams who are dedicated to building customer focused product strategies and life cycles. A quick check on the Amazon careers page reveals many product management positions. Do you have product management positions in your organization?

    Check out a typical set of responsibilities from Amazon’s Baby Registry product management gig and note the mix of business and technology functions and responsibilities:

    • Research and identify opportunities for Amazon to further distinguish our Baby Registry offering.
    • Define a long-term product roadmap, including technical, business development and marketing initiatives.
    • Develop new strategic partnerships ad drive day-to-day partner relationships.
    • Conduct business and financial analysis, including forecasting, monitoring, and reporting.
    • Define requirements, and drive customer experience projects and work with all relevant cross-functional areas and our technology teams to guarantee smooth, efficient implementation.
    • Manage bottlenecks, provide escalation management, anticipate and make trade-offs, balance the business needs versus technical constraints, and maximize business benefit while building great customer experiences
    • Work cross-functionally with designers, software development engineers, salespeople, product managers, and other internal partners.
  2. Budget/Investment
    How might our current budgets change if we considered ourselves  technology companies? Maybe not at all, but we should nonetheless re-examine our customer investment strategy in such a light. At the very least, we might consider revamping our budget processes to accommodate a fast moving, highly innovative competitive marketplace where the features and functionality of our website “product” are key parts of our business strategy and our ability to differentiate from our competitors.
  3. In house or outsource?
    Often we decide to outsource technology (and other elements of our businesses) because they are not “core” to our business and other people can do a better and more cost effective job. How does our thinking on outsourcing change if we consider ourselves technology companies? We might still legitimately consider outsourcing or licensing third party software, as many software companies do. However, we might also consider building up true competencies in at least some areas of software design and development because of the need to differentiate and deliver quality branded experiences for our customers.

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Recognizing and accepting the fact that developing an e-commerce operation puts us in the consumer technology business is an important first step to successfully competing in the online marketplace. Once we’ve achieved the consumer technology mindset, we’ve got to take steps to create an organizational structure that executes like a consumer technology company. Without such steps, we will fall further and further behind the companies who are leveraging their technology focus to create the positive customer engagement cycles I discussed in my previous post.

What do you think? Do you think being in e-commerce means you’re in the in consumer technology business? How is your company organized?

Photo credit: Sebastian Bergmann


The Prizes and Perils of Free Shipping

Shipping charges. As customers, we HATE paying for them, and we LOVE getting them free. In fact, our feelings about shipping charges are so strong that we highly overvalue free shipping. We’ll spend money we didn’t plan to spend on products we don’t need in order to avoid dumping cash into those awful shipping fees, even when that incremental spending is much more than the shipping charge.

So, free shipping promotions are a powerful tool for retailers. But, if we’re not careful, overuse of free shipping offers could lead us down a path where free shipping becomes more an expectation than an attractive benefit. At that point, we’ll be left with the huge costs of subsidized shipping without incremental sales to support those costs. And that ain’t a pretty equation.

That said, strategic use of free shipping incentives can lead to incremental sales and greater brand loyalty. We’re probably all familiar with the various “free shipping when you spend $X” offers that are out there, so let’s consider some of the more innovative strategies in use today for free shipping:

Free shipping as part of the business model

Zappos really uses free shipping on purchases and returns as a key component of their business model. They encourage people to order multiple sizes of the same pair of shoes and return those that didn’t fit (or those they just didn’t like, for that matter). Free shipping removes a key disadvantage Zappos has to physical retailers, and in fact even provides an advantage for customers who can try on shoes in the comfort of their own homes.

Zappos’ CEO Tony Hseih has said Zappos is a customer service company not an e-commerce retailer, and free shipping is a big part of their customer service strategy. He’s also said Zappos looks at customer service as a marketing expense, which I think is an interesting perspective that might help the cost make business sense.

But free shipping both way at all times is not a sustainable business strategy without trade-offs. Zappos is not the low price leader in their category by any means. Even with their higher prices, public filings from the recent Amazon acquisition of Zappos exposed their relatively low profits as a percentage of sales. Zappos has certainly built a powerful brand with a loyal following so it looks to me like they’ve made the trade-offs work, but theirs could be a tough model for others to follow. I’ll be curious to see if the model continues to work within the Amazon business model.

Speaking of which…

Free shipping as a loyalty program

Amazon Prime is one of the more brilliant loyalty program innovations to come along over the last several years. For an annual fee of $79, customers can get free 2-day shipping on many key items and free standard shipping on many more. Again, this is a case of a pure-play e-commerce retailer looking to mitigate one of its disadvantages to physical retail. Amazon sunk some money into this program by giving away a lot of free trials, but they’ve since hooked people in to the fee. A recent Piper Jaffray analysis estimates Amazon Prime’s membership at 2 million people and growing at 24% annually. And once you pay $79 to get free shipping, you’re going to make the most out of it. Piper Jaffray found member spend growing from $400 annually to $900 annually!

But this again is an expensive proposition that wouldn’t be sustainable for most businesses. The $79 will help to defray some of the free shipping costs, but as with most paid loyalty programs that I’ve studied, customers don’t renew their memberships unless they’re getting a positive return on their investments. And Amazon, as a general merchandiser, can provide customers with enough product choices that they can visualize making enough purchases to get their money back and then some. Specialty retailers may not be able to offer a similar program on their own; although, I keep thinking there might be an opportunity for some third party to aggregate a bunch of retailers into a program in a way that might work. (Maybe that’s a future post.)

Free shipping as a store traffic driver

The previous two examples were pure-play retailers using free shipping as a way to mitigate a major disadvantage they have to physical retailers. So how can multi-channel retailers leverage the advantages they have with their multiple channels? Free shipping to stores is one way. When I was at Borders, we offered unrestricted free shipping to our stores as a cross-channel strategy in order to leverage the selection and experience of Borders.com combined with the convenience of picking up the order in our stores. Originally, we thought it would appeal mostly to urban dwellers who didn’t want packages left on their doorsteps, but it turned out to be a hit all around for people who just didn’t want to pay for shipping. Wal-Mart does something similar with their Site-to-Store program. And Borders just took it a step further with their recently announced “in stock guarantee” for their stores that offers free shipping to home for customers if the Borders store is out-of-stock on the item the customer came in to purchase.

But businesses offering free shipping without purchase hurdles often depend on additional future purchases to make the offering profitable. For example, we ran a lot of analysis at Borders on the free shipping to stores offer. We determined we needed X% of people to buy $X more in-store when they picked up their orders for the offer to make financial sense. With the new offering, it appears Borders is counting on pulling some market share from Amazon with the promise of books available right now in their stores.

There can be little doubt that free shipping is a powerful offer, but we have to be careful how we wield it. Someone recently told me that effectiveness of fire lies in prudence and intention. Used in a positive manner, it can provide great warmth and light but when used in a negative manner it can cause great destruction. Since I like overly dramatic metaphors, I’m going to compare free shipping to fire. Let’s be careful out there. 🙂

What do you think? Should we be concerned about free shipping becoming an expectation? How do you use free shipping strategically?



Wanna be better with metrics? Watch more poker and less baseball.

Both baseball and poker have been televising their World Series championships, and announcers for both frequently describe strategies and tactics based on the statistics of the games. Poker announcers base their commentary and discussion on the probabilities associated with a small number of key metrics, while baseball announcers barrage us with numbers that sound meaningful but that are often pure nonsense.

Similarly, today’s web analytics give us the capability to track and report data on just about anything, but just because we can generate a number doesn’t mean that number is meaningful to our business. In fact, reading meaning into meaningless numbers can cause us to make very bad decisions.

Don’t get me wrong, I am a huge believer in making data-based decisions, in baseball, poker, and on our websites. But making good decisions is heavily dependent on using the right data and seeing the data in the right light. I sometimes worry that constant exposure to sports announcers’ misreading and misappropriation of numbers is actually contributing to a misreading and misunderstanding of numbers in our business settings.

Let’s consider a couple of examples of misreading and misappropriating numbers that have occurred in baseball over the last couple of weeks:

  1. Selection bias
    This one is incredibly common in the world of sports and nearly as common in business. Recently, headlines here in Detroit focused on the Tigers “choking” and blowing a seven-game lead with only 16 games to go. In a recent email exchange on this topic, my friend Chris Eagle pointed out the problems with the sports announcers’ hyperbole:

    “They’re picking the high-water mark for the Tigers in order to make their statement look good.  If you pick any other random time frame (say end-of-August, which I selected simply because it’s a logical break point), the Tigers were up 3.5 games.  But it doesn’t look like much of a choke if you say the Tigers lost a 3.5 game lead with a month and change to go.”

    Unfortunately, this type of analysis error occurs far too often in business. We might find that our weekend promotions are driving huge sales over the last six months, which sounds really impressive until we notice that non-sale days have dropped significantly as we’ve just shifted our business to days when we are running promotions (which may ultimately mean we’ve reduced our margins overall by selling more discounted product and less full-price merchandise).

    In a different way, Dennis Mortensen addressed the topic in his excellent blog post “The Recency Bias in Web Analytics,” where he points out the tendency to give undue weight to more recent numbers. He included a strong example about the problems of dashboards that lack context. Dashboards with gauges look really cool but are potentially dangerous as they are only showing metrics from a very short period of time. Which leads me to…

  2. Inconsistency of averages over short terms
    Baseball announcers and reporters can’t get enough of this one. Consider this article on the Phillies’ Ryan Howard after Game 3 of the World Series that includes, “Ryan Howard‘s home run trot has been replaced by a trudge back to the dugout.The Phillies’ big bopper has gone down swinging more than he’s gone deep…He’s still 13 for 44 overall in the postseason (.295) but only 2 for 13 (.154) in the World Series.” Actually, during the length of the season, he had three times as many strike outs as home runs, so his trudges back to the dugout seem pretty normal. And the problem with the World Series batting average stat is the low sample size. A sample of thirteen at bats is simply too small to match against his season long average of .279. Do different pitchers or the pressures of the situation have an effect? Maybe, but there’s nothing in the data to support such a conclusion. Segmenting by pitcher or “postseason” suffers from the same small sample size problems, where the margin of error expands significantly. Furthermore, and this is really key, knowing an average without knowing the variability of the original data set is incomplete and often misleading.

    This problems with variability and sample sizes arise frequently in retail analysis when we either run a test with too small a sample size and assume we can project it to the rest of the business, or we run a properly sized test but assume we’ll automatically see those same results in the first day of a full application of the promotion. Essentially, the latter point is what is happening with Ryan Howard in the postseason. We often hear the former as well when a player is all of the sudden crowned a star when he outperforms his season averages over a few games in the postseason.

    In retail, we frequently see this type of issue when we’re comparing something like average order value of two different promotions or two variations in an A/B test. Say we’ve run an A/B test of two promotions. Over 3,100 iterations of test A, we have an average order size of $31.68. And over 3,000 iterations of Test B, we have an average order size of $32.15. So, test B is the clear winner, right? Wrong. It turns our there is a lot more variability in test B, which has a standard deviation of 11.37 compared with test A’s standard deviation of 7.29. As a result the margin of error on the comparison expands to +/- 48 cents, which means both averages are within the margin of error and we can say with 95% confidence that there really is no difference between the tests. Therefore, it would be a mistake to project an increase in transaction size if we went with test B.

    Check out that example using this simple calculator created by my fine colleagues at ForeSee Results and play around with your own scenarios.  Download Test difference between two averages.

Poker announcers don’t seem to fall into all these statistical traps. Instead, they focus on a few key metrics like the number of outs and the size of the pot to discuss strategies for each player based largely on the probability of success in light of the risks and rewards of a particular tactic. Sure, there are intangibles like “poker tells” that occur, but even those are considered in light of the statistical probabilities of a particular situation.

Retail is certainly more complicated than poker, and the number of potential variables to deal with is immense. However, we can be much more prepared to deal with the complexities of our situations if we take a little more time to view our metrics in the right light. Our data-driven decisions can be far more accurate if we ensure we’re looking at the full data set, not a carefully selected subset, and we take the extra few minutes to understand the effects of variability on averages we report. A little extra critical thinking can go a long way.

What do you think? Are there better ways to analyze key metrics at your company? Do you consider variability in your analyses? Do you find the file to test two averages useful?



Related posts:

How retail sales forecasts are like baby due dates

Are web analytics like 24-hour news networks

True conversion – the on-base percentage of web analytics

How the US Open was like a retail promotion analysis

The Right Metrics: Why keeping it simple may not work for measuring e-retail performance (Internet Retailer article)

Sitting in the “Marketing Hot Seat”

My good buddy Adam Cohen, a Rosetta partner who heads up their Search, Online and Social Media businesses, issued a challenge called “The Marketing Hot

You’re the CMO.  You
have a marketing budget of $1M.  Your company is a consumer product
company, relatively unknown / early stage.  Customers who know the
product like it. CEO wants ROI within 12 months.  What do you do?

I thought this would be a fun exercise to take on, particularly because the scenario placed me in the seat of a manufacturer, publisher or product company. Would my retail oriented perspective provide a different line of thinking than would typically come from a manufacturer, and would that perspective be worthwhile? I’d certainly love to know your thoughts.

My take is actually the first one Adam posted on his blog, A Thousand Cuts. Check things out over there over the next few weeks to see perspectives from the other 12 bloggers.

Here’s my answer to Adam’s challenge:

OK.
Setting aside all the caveats about the fact that I don’t know what the product is, what it costs to make and what our margins are, here’s generically how I would approach the situation:

Strategy

  1. Thoroughly understand the customers who like our product
    The customers who know our product like it. We need to find out why, in their words, and determine what personality traits, hobbies, demographics, etc. in those customers are relevant to their liking our products so that we can speak to others like them.
  2. Get our online destinations right
    With a relatively small marketing budget, we’re going to need to maximize our online strategy. (Actually, we should do that even if have a large marketing budget.) We need to make sure our website and our retailer websites are highly usable and highly effective in merchandising our product and providing the ability for customers to easily spread the word about us.
  3. Drive traffic with whatever budget is left
    Only when we have ensured that we have solid destinations for our traffic will we start to actively search for traffic.


Tactics

  1. Learn as much as we can about the customers who most love the product.
    Why do they like it? What are there personality types; let’s use the Myers-Briggs personality test and really get a  thorough understanding of these folks. How do they describe our product? Let’s pay attention to the words they  use as we’re going to reuse those words in our copy.
  2. Hire ForeSee Results to measure our site’s effectiveness from our customers’ perspectives.
    I realize this may seem self-serving since it’s my company, but I was a client for seven years before joining the  company three months ago, and I’ve see how well it works.  So, I want it in this role. So there! We’ll use  measurements, analysis, Session Replay and usability audits to ensure we’re providing the best experience  we can.
  3. Hire Bryan Eisenberg to develop archetypes and to implement Persuasion Architecture on our site.
    We need to speak to customers in language that resonates, and Bryan understands how to do that. We’ll also use  his language for product descriptions and other content we give to retailers for their sites.
  4. Create a high quality product video.
    We’ll use this video on our own site and we’ll give it to retailers for their sites. We’ll focus on the key aspects  customers love and use copy that includes words that resonate with those customers. We’ll also show real  customer testimonials.
  5. Launch customer reviews and customer forums on our site
    We need to make sure our customers can openly provide their thoughts about our product, even when  they’re negative.
  6. Launch several blogs on our site
    Since we only have one product, we need to provide some fresh and compelling content on our site to give people a reason to come back. The content doesn’t need to be about the product all the time. It can be able anything, as  long as it’s compelling. I’ll focus on general marketing, our CEO can blog about leadership, and we’ll find some  people to blog about topics our customers are interested in. All of this blog content will also be great for SEO.
  7. Launch a marketing campaign to retailers informing them about key customers and teaching them how to sell the product
    Our initial marketing efforts will essentially be internal. Let’s get the sellers pumped up and doing their jobs well  before we send customers their way.
  8. Develop a widget for retailers that gives customers the ability to easily share information about the product
    We need to give our customers ways to share information about our product on their own in a way that is easy and  positive. Let’s create a fun widget that people want to share on Facebook, Twitter, email, etc.
  9. Get our SEO right, buy search terms, send emails, run re-marketing campaigns, etc.
    I don’t want to minimize the value of these techniques, but we really need to make sure our destinations are right  before we add lots of traffic.So there you have it. My main point here is to focus on the customers first, the destination second and the traffic driving last.

What do you think? Does my strategy make sense? How would you have addressed the challenge? Do your manufacturer/publisher/product partners address your needs?

Retail: Shaken Not Stirred by Kevin Ertell


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