Using Consumer Data for Marketing Decisions; “Yeah, We Ought to do More of That.”

It’s a bad idea to write something requiring you to talk to the marketing people at snowboard companies during the selling/tradeshow season. But the topic is a critical one. Most companies in this industry don’t do a good a job collecting and utilizing consumer information as they should. They understand that success in a tough market requires it, but don’t do it in a systematic way.   Why?

What are the barriers to doing it? Why is it important? What are some of the possible benefits in the snowboard industry? Let’s find out.

Why Do It?

Slower growth, margin pressures, a difficulty differentiating between product lines, and the resulting need for higher advertising and promotion budgets means it’s harder to make money in the snowboard b. Knowing your consumer keeps you focused and helps you run your business efficiently.
 
Think about the demographics. The average snowboarder is getting older. The female market, at least in soft goods, is taking off. Your distribution has changed and expanded. A growing percentage of young people are non-white. The SIA Customer Retention Survey shows that only ten percent of people who try snowboarding go back for a second shot- just like in the ski industry. 
 
 Are your customers the same they were three years ago? How do you know?    Has their motivation for buying and participating changed? How?
 
“Danger Will Robinson!” These are fundamental strategic issues that will affect everything about how you run your business. How can you even begin to make good tactical decisions unless you know your customer? What decisions might you make differently, and what would the benefit be?
 Dennis Jenson at Burton discovered through the brand’s consumer demographic data that more snowboarders were mountain biking. That research made him look at Burton’s advertising mix and think about what part mountain biking magazines should play. If a company stops advertising where it isn’t reaching its target customers and started advertising where it does, it saves money and reaches more buyers. That kind of focus is critical in this competitive environment.
   
  When you internalize the knowledge of who your customer is in your organization, you create a focus and a decision-making filter that
improves and simplifies much of your decision-making. For example, it should be easier to form a consensus on which retailers you should be in or not be in Around the turn of the twentieth century some mogul said, "I know half my advertising budget is wasted-I just don’t know which half." Knowing whom your customer is not only positions you to sell better-it saves you money.
 
But this isn’t just about your advertising and promotion budget. It’s about how you make decisions on product line breadth, pricing, staffing. To use an obvious example, how many race boards do you need in your product line when you sell very few? Are the people designing your graphics representative of your customer?    
Arbor Snowboards knows who their consumer is. It’s the older snowboarder. They figured that out before they started the company. They have never wavered from it. It’s the focus of the decisions they make every day.
That focus probably helps to explain why Arbor could start a new snowboard brand at the height of the consolidation and still survive. In
fact, while it’s a smaller brand, Arbor has continued to grow. "We’re focusing on who our customers are-not what our competitors are doing," says Carlson. "We’ve done that since the day we started the company."  Focus on the customer seems to be something of a mantra at Arbor. As they found out, the need for survival is a good reason to make sure you know who your customer is and what they want.
 
Standard Industry Practices
The marketing people I reached were generally consistent in their descriptions of how they collected consumer information and what they did-or didn’t do-with it. Here’s what I heard. Bare in mind that this is an amalgamation of what a "typical" company does. Some do it better, and some do it worse.
Companies check out some of the industry studies available (for example from SIA or BoardTrac). The information isn’t always brand specific. They tend to have looked at, or are at least aware of, general demographic data and trends.
They collect information from consumers who are interested in their products from warranty return cards, and from internet and telephone catalog requests. Consumer or retailer focus groups are pretty common and they seek out the opinions of their team riders-especially in product development. They further rely on the usual anecdotal evidence and their own experience as snowboarders.
In most cases, the information collected from consumers is limited to name, address, phone number, and age. In other instances, such as on warranty cards or on some internet surveys, different questions are asked.
 
The process of deciding what information to gather seems to be a little informal. That is, there isn’t typically a process by which questions relevant to the company’s strategy are discussed and selected. It’s more like the guy designing the warranty card has room for another question and asks the sales manager what they should ask.
Once the data is collected, most companies don’t think they make the effort they should to systematize and utilize it. It’s a lot of work to
create and maintain a database. So, the typical company collects some data, but doesn’t put all that much thought into what data they should collect, or what the goal is in collecting it. It isn’t collected consistently. Once collected, it’s often not analyzed or even systemized. Completed warranty cards can gather dust in a desk drawer.
I don’t think that snowboard companies are worse than companies in other industries of similar size in collecting and utilizing consumer information. But we could sure be better.

Why is This So Hard?

Given the almost universal consensus that market research is a good idea, why hasn’t it happened more? I can think of five reasons in
snowboarding.
First, in spite of the consolidation, snowboarding is still an industry with a lot of snowboarders in management positions. We believe-and correctly I think-that we’re pretty close to our customers and see that as a substitute for market data. But we’re all getting older. Our continued ability to be close to the market has to become more of a concern.
Second, collecting and utilizing consumer data is a pain in the ass. It takes a lot of time and costs money. When you’re done, you may have more questions than you started with. The costs are always hard costs that you see on the expense side of the income statement. The benefits are more touchy feely, and don’t show up immediately unlike the invoice for the data collection and computers to analyze it in.
Third, we’re a small industry, and, until recently, the costs may not have been seen as justifiable given the potential financial benefit.
Fourth, somebody has to have the responsibility and the authority to make it happen. It’s a full-time job. Getting the data from the catalog requests into the database can’t be seventh priority on the list of things the receptionist has to do. Burton’s Dennis Jenson put it this way, "Data is like produce-it tends to rot." So if you don’t use it in a reasonable amount of time, the cost and effort of collecting it is
wasted.
Fifth, the technology to make it easy and cost affective wasn’t around until pretty recently. That’s changing, but it’s usually a while after
the technology works that the benefit is realized. It was about 1982, for example, that the "experts" started prognosticating on the
improvement in productivity that would result from computers. It seems to have started to happen within the last couple of years, and only recently is it being generally recognized.

The Times, They Are A Changing

The computer, scanning, and database technology needed to actually make sense of consumer information is readily available and getting cheaper all the time. The process of consolidation also means that most of the surviving companies are larger and more sophisticated. They are more likely to have the resources and the awareness to collect and utilize the data. Finally, the new financial model I outlined above almost requires better consumer knowledge.
Mark Bujold at Rossignol sees consumer research as an important issue. He acknowledges that with budgets tighter across the industry, it could be hard to justify the hard costs by the longer-term soft benefit. However, "Rossignol is stepping up the effort [to collect and utilize consumer data] company wide," he says.
Hayley Martin at K2 Snowboards described her company’s efforts at consumer market research as progressing. This is the second year for the brand’s revamped consumer data collection program, which includes a survey attached to every product they ship, offering the consumer the opportunity to receive regular product information from K2 in return for completing the form. K2 has contracted with an outside agency to maintain and build the database, and expects to start making more regular use of it to reach consumers. "The dealers can utilize the same database," she says. "They can call us and get mailing labels for people in their area who are interested in K2 Snowboard product."
Recently, I heard about a conversation somebody who has been in snowboarding a long time had with a friend about his kids. “Are your kids snowboarding yet?” the friend asked. “Are you kidding?” he answered. “They’re skiing. Snowboarding’s what dad does.”
 
It would be dangerous to draw any conclusions from a single anecdote. But we all have some tendency to internalize as “the truth” things we hear often enough if they fit our mindset. Lacking good information, what else are we going to do?
 
Our winter sports cousin, the ski industry is a case in point. We’re damn close to being married to our cousin, and incest can produce some dangerous genetic conditions. Skiing has been in decline for many years. Aside from jumping on the snowboarding bandwagon, the ski brands have been slow to change their market positioning. I don’t know if the information wasn’t there, or they just didn’t want to look at it because of the inevitably unpleasant reality it represented.
 
Snowboarding has the chance to make the same mistake. Or not. Work hard to figure out who your customer is and how that is changing. Save money. Sell more. Have fun.

 

 

Thoughts From the Action Shoe Retailer Show; Opps- Did I Get That Wrong?

This article sort of took shape the Monday the show ended. In the first place, I was flying back to Seattle on an Alaska Airlines MD80, which didn’t exactly put me in a positive frame of mind. Second, thanks to the ticket to the Sunday evening Gallas party Jeff Cutler gave me, I was suffering from the residual affects of too much fun.

 
There were 42 companies listed as selling footwear. I trust they weren’t all skate shoes, but a lot of them were. Not only were there more companies with skate shoes- each company was showing more colors and styles.
 
I pulled out the article I did at the end of 1994 on the imminent consolidation of the snowboard industry. I actually toyed with the idea of taking that article, changing “snowboard” to “skate shoe” wherever it appeared in the article, and having Skate Biz run that article with the changes showing just to make a point.
 
But I changed my mind, deciding there were a couple of differences worth discussing, and I’ll get to them in a bit.
 
Shoes to the Right of Me, Shoes to the Left of Me
 
With one exception, every shoe company I talked with had increased the number of shoes they were offering. The walls were covered with skate shoes. Mostly high quality skate shoes. Even the price point shoes seemed well built. They didn’t have all the colors and different layered materials of the expensive models, but I was assured they were just as solid and functional.
 
Everybody’s shoes were solid and functional. Made largely from the same materials and with similar features. If there was a color that wasn’t used in somebody’s shoe, I don’t know what it was.
 
The increase in the number of shoes per company is a response to what each company’s competitors are doing. It is not meeting any need of the consumer, unless it’s a perceived need the industry hopes to create by marketing.   
 
Though I’m not a skater anymore, I enjoy wearing skate shoes. I find them comfortable, they give good support, and they look great. But I could be talking about any brand. Because the industry has done such a good job creating a quality product, the basis of competition is starting to inevitably evolve to price and marketing.
 
Charge for the Guns!
 
The price trend I heard about was down. My belief is that this decline in prices offered to retailers wasn’t accompanied by a similar decline in manufacturing costs. I recognize that not every style and color way exhibited at the show will be produced. But more styles and colors will be produced. Manufacturing efficiencies result not just from overall volume, but also from the volume by style and color. If you want to make 10,000 pairs of shoes, you’ll get your best price if they are all exactly the same. So increasing styles and colors has some negative affect on your cost per pair.
 
But the thing that really caught my attention was the first shoe company giving 90-day terms to some of its customers.
 
Let’s say that a skate shoe company starts offering its better customers 90-day terms. Just to pick a number, let’s say it’s a larger company, and they have $10 million in annual sales done with terms of 90 days, where before that whole amount was sold COD. If they’ve got a gross margin of fifty percent, just to pick a number, that means they’ve got an extra $5 million of working capital invested in the business for 90 days. What does it cost to borrow $5 million for 90 days? You do the math using your own cost of capital.
 
Of course, it’s even a little worse than that. In the first place, we’re making the assumption that the check for each sale with 90-day terms is deposited on the 90th day and you get immediate credit. Bet some take longer to pay. In addition, the thing about giving terms is that somebody ends up not paying at all.
 
Companies give retailers terms when they feel they have to in order to compete. The trouble, of course, is that like frequent flyer programs, once one company does it, most of the rest of the companies have to do the same.  If they can afford it. Instead of being a competitive advantage, it’s just a cost. But it’s a great thing for the retailers.
 
The retailers, of course, find it harder and harder to make a rational selection among the hundreds of colors and styles. How do they select? They pick the shoes that give them the best price and terms and check at retail. Best price and terms means lower margin and higher working capital requirements for the brands. Making a shoe check at retail when it’s more or less the same as everybody else’s shoes means big marketing programs. Talk about charging for the guns.
 
Boldly They Rode, and Well
 
Big booths. Two stories. Back rooms. At the end of the show, if you put some of those booths on a lot, added plumbing (they’ve already got enough electric) and put on a roof, you’d have a fair sized house.
 
We’ve got a market that’s growing quickly. All the competitors want their piece of it. This is the time to get it, and they are pulling out all the stops to do that. The typical argument is “Market share is more important than profitability while the market is growing this fast.”
 
Guess what? I agree with that. The time to establish your position in a market is when it is growing quickly. If you’ve started recently, you better either have a big balance sheet and lots of money to lose for a while, or a clear picture of your market niche and a way to compete against the big guys.
 
The Good News
 
Okay, I’ve had my fun. I think the cautionary analogy of the Charge of the Light Brigade is worth thinking about in the skate shoe business. Will you care how glorious your charge was if you die in the process, no matter how many flags you had waving? And the chance to see a classic poem written 150 years ago printed in Skate Biz is just too good to pass up.
 
The skate shoe business is evolving to the point where it isn’t really just the skate shoe business. It’s the lifestyle casual footwear business. That opens up a big market. A really big market. I won’t give the favorable demographics speech. I’m sure we’ve all heard it too damn many times. That’s why there were 42 footwear companies at the show. But the fact is that more and more young people are going to be looking for casual, comfortable, stylish casual shoes. Everybody needs shoes. And they need them all year around. The market should be growing for a while.
 
Piece of good news number one, then, is that the market is growing, and should continue to grow. Number two is that it’s a year around business, though it has some seasonality. Year around sales means year around cash flow. Which means it’s easier to finance growth. Not easy, but easier.   
 
The financial model I’ve described in this industry- declining gross margins and higher marketing expense due to normal competitive pressures when product differentiation is difficult- usually has only one solution. That solution is to be big, or for your skate shoe line to be only one product line in a company that sells other product as well. 
 
At some volume of sales, your general and administrative expenses, and your advertising and promotion expenses, can decline as a percentage of sales even as their absolute dollar amounts go up. Obviously, companies like Adidas and Converse can afford to invest in the skate shoe business.    But there are a number of “core” skate shoe companies who already have the sales volume and/or balance sheet to compete in the market as it’s going to be and make money. There greatest challenge will be to transition to broader distribution without losing their legitimacy.
 
That there are core companies solidly positioned is good news, because I want to see the companies who understand skating continue to support and influence it. To me, that lessons the chance of another skateboarding recession. 
 
Please remember the lessons of every other industry. Growth eventually slows, and the conditions of competition change. Retailers gain power, size becomes important, the financial model becomes tougher, and entrepreneurs have to become managers.
 
The charge of the heavy brigade under General Scarlett, which preceded that of the Light Brigade, succeeded in reaching its objective at very little cost. They were prepared for their battle.           
 
The Charge of the Light Brigade
 
Half a league, half a league,
Half a league onward,
All in the Valley of Death
Rode the six hundred.
‘Forward the Light Brigade!
Charge for the guns!” he said:
Into the Valley of Death
Rode the six hundred.
 
‘Forward the Light Brigade!’
Was there a man dismayed?
Not though the soldier knew
Some one had blundered:
Their’s not to make reply,
Their’s not to reason why,
Their’s but to do and die:
Into the Valley of Death
Rode the six hundred.
 
Cannon to right of them,
Cannon to left of them,
Cannon in front of them
Volleyed and thundered.
Stormed at with shot and shell,
Boldly they rode and well,
Into the jaws of Death,
Into the mouth of Hell,
Rode the six hundred.
 
When can their glory fade?
O the wild charge they made!
All the world wondered.
Honour the charge they made!
Honour the Light Brigade,
Noble six hundred.
 
Alfred Lord Tennyson
 
The Charge of the Light Brigade occurred during the Crimean war in 1854. The brigade consisted of 673 officers and men at the start of the charge. 247 men and 497 horses were lost without achieving anything. But it was glorious while it lasted, and the survivors were decorated and promoted.