January Twenty

This midweek Fix goes deeper on everything retail - DTC / DNVB/ O2O/ Omnichannel  etc and we aim to give everyone involved in this vibrant new economy insight and tips that help make your business more efficient. Tell me how we can make this better  - hit reply.

Iconic Merchants - Argos is a little low key compared to some of the stores we have featured but they pioneered local delivery and this store was the sweet spot in their Accenture digital transformation

Lifetime Value
 
All the metrics that drive the Merchant economy need more scrutiny than they often get. The idea of one ‘average’ customer acquisition cost doesn't make any sense - as this VC analysis demonstrates. 
 
But the one we always question is Lifetime Value. This is a lagging metric, but everyone has to estimate it, not least to justify the customer acquisition cost.
 
So sometimes this can be wishful thinking. The key issues we have seen are around measuring and forecasting churn and understanding the real cost of returns.
 
The Common Thread team have interesting thinking about using Cash Multiplier as an alternative. And our friends at Nozzle have a neat way of approaching LTV for Amazon sellers - definitely worth a look

Action? Are you confident all your key metrics are robust?

Returns
 
Returns are a structural fault in ecommerce. Free returns are now table stakes but if you don’t handle the process well it can really damage you; annoying customers and costing you real money. Especially now that so many people treat returns as part of the buying process - buy a selection knowing you will return those that don't fit, you don't like or decide you can't afford. Managing the process is a hassle too - get the parcel back, check for damage, handle the refund and decide whether the goods can go back on sale and what preparation is needed.
 
Some big firms are testing a new approach - refunds without having to return. Amazon and Walmart will give a refund and let some customers keep items they don’t want . You could argue that Casper started this - they pioneered free returns, after as much as 100 days - but often manage the returns through local charities rather than actually taking the surplus mattress back.

Action? What is the gold standard for returns in your sector? How do you compare?

Churn
 
Netflix is a great example of pioneering a DTC model - and we usually cover it within our thinking about newTV, but there is good learning here for Merchants.
 
The new Netflix numbers (for Q4 2020) are impressive - subscribers now number over 200m and ARPU is up to just over $11. At the start of 2018 they had 118m subscribers and ARPU was just under $10. 
 
But much of the growth was outside the US - just 17% of the years’ growth was in the US. So is the competitive heat driving some churn in the US? As ever the shareholder letter is a must read.
 
This good Bloomberg argues that some churn is inevitable - and talks of Hoppers; people taking out a subscription for a month and bingeing content, then cancelling and moving to a competitor to do the same.
 
This will be exacerbated by a new law in New York from next month that requires any service which auto renews to notify its clients that the renewal is due - and make the signing up clearer. Given the efforts of Amazon etc with dark patterns - now getting the attention of regulators - we can see this type of consumer protection spreading.
 
To be fair this is not an issue for Netflix - as they announced in their Q2 shareholder letter last year they automatically stop billing people who have stopped watching;
 
A very small percentage of our members have not watched anything for the last two years and although we make it easy for people to cancel their subscriptions with just a few clicks, they have not taken advantage of that ability. So we decided to stop billing them and will do so for members meeting the same criteria going forward. Like all of our former members, they can easily restart their membership in the future. While this change resulted in a slight hit to revenue, we believe that pro-consumer policies like this are the right thing to do and that the long term benefits will outweigh the short term costs. In a world where consumers have many subscriptions, auto-pause on billing after an extended period of non-use should be how leading services operate
 
The lesson for any DTC business; look after your customers and they will look after you

Action? How do you identify customers at risk of churn? Could you test ways to reactivate them?

Social 
 
Back in November we covered the launch of the Snap Spotlight service and highlighted their focus on Creation;
 
Snap have a new feature called Spotlight where they encourage people to publicly post videos - with a $1 million a day handed to the creators of the best ones. Clearly an attempt to get more TikTok like content, but with the safety net of incentives to keep the quality of the content high. One issue we hear about TikTok is that there is a lot of dodgy content  - to be fair this tends to be from light / new users where the algorithm possibly hasn’t quite sussed them yet. Snap have also acquired Voisey - a UK app that lets people add their own vocals to music. Yes that does sound quite like Musically, the app TikTok was born from.
 
As the app features blend, what differentiates them? This piece argues that it is about the network, but also making the point that Snap is still all about creation;
 
TikTok and Instagram open straight to the feed — and in fact, Instagram recently moved the post creation button out of the main toolbar altogether — but Snapchat still opens to the camera.
 
Already Spotlight is paying $millions to Creators - one has been paid over $3m over the last few weeks. We guess that the math also works for Snap here - they sell eyeballs to advertisers, so more eyeballs is good. 
 
The New York Times ran this story under the banner of The Influencer Economy. And new moves on TikTok underline this term - many creators are monetizing through Amazon Product recommendations.
 
We are fascinated by MSCHF but they keep a low profile so any coverage is interesting - and this video investigation is worth watching.
 
Last Mile 
 
I watched a good Founder Forum webinar with the CEO and co founder of Delivery Hero this week, talking about Quick Commerce. They aim for 15 minute delivery and often achieve 11/12 minutes. So customer expectations are high. There are lots of startups in this space and the infrastructure - like warehousing - is driving investment.
 
Amazon
 
The marketing infrastructure at Amazon continues to grow. The Amazon Marketing Cloud (beta) looks really promising. 
 
An Amazon seller shares some insight into their business over the last year - looking at selling on Walmart and eBay too.
 
And there are lots of people - and capital - focused on buying Amazon sellers businesses. Thrasio is probably the highest profile
 
Plus+
 
Really interesting thinking from a Hedge Fund arguing that the death of retail has been overstated
 
Why the Cost of Shipping Goods From China Is Suddenly Soaring
 
Catalogues are back (online) - check out The Fascination and read more on them here 
 
Variety on the Netflix Q4 figures
 
Foreign Amazon sites named in US 'notorious markets' list for counterfeit goods
 
China Is Dominating Ecommerce
 
How personalization is transforming the luxury industry
 
Why VC funding is falling out of favor with top D2C brands - time to update my Bonsai Brands thinking?
 
Fastest-growing direct-to-consumer (DTC) startups 2020