Episode 66: Lessons from 45 Black Fridays in Ecommerce

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Transcript

Announcer:

Welcome to Nerd Marketing, an original podcast for e-commerce operators and marketers looking to level up. Drew Sanocki and Michael Epstein will bring you actionable strategies from their decades of running eight- and nine-figure brands, along with interviews and insights from the leaders of some of the most successful brands in the world.

Drew Sanocki:

Hey everybody, it's almost October, Black Friday/Cyber Monday is coming just a couple months away. We put our heads together. We put together this webinar recently on the top tips we've had from 20 years in e-commerce on how to prepare for Black Friday and Cyber Monday. We thought it was worthy of a podcast, so we hope you enjoy it. Thanks. There's more than enough information out there. Tactical information, weeds, information on how to A/B test your subject lines during Black Friday and what hour of the day you want to send out your emails or your SMS, and this is not that webinar. We think what's missing is a little bit of the voice of wisdom of people who have been there cumulative 50 Black Fridays sort of between Mike and I and what we're just trying to do is look back on those 50 and say, what are the big takeaways? What are the big principles when we were CMOs? What are the big things we wish we knew, which I hope will help you separate the wheat from the chaff and all the noise out there as you go through this holiday. What are the big wins? What's the 80/20? What are the things to keep in mind? So that's where this webinar came from. My name is Drew Sanocki. I'm a 25 year e-comm vet, Mike Epstein, 20 year econ vet. I'm older than you are. 

 Michael Epstein:

Technically a little longer, but it's funnier when we do it this way.

Drew Sanocki:

Yeah, I ran a really small, crappy $1 million brand and I've run a really crappy $100 million brand, both crappy. That's the commonality. Same with Mike because we were in this business of private equity turnarounds for a while where we'd buy these big busted brands. They're doing a hundred million, losing 10. That was always the profile and we'd get 'em profitable and grow them and sell them. It's not a glamorous job, but it paid the bills and we learned a lot because each of them had Black Friday. So we're going to draw on some of that experience. How do I get to 50 Black Fridays? Well, 25 from me, 20 from Mike, and then I felt like it's cooler to say 50 than 45 or 46.

 Michael Epstein:

Yeah, so I don't know. We've got an intern somewhere on the line that's got a few years under. So yeah, we added that in.

Drew Sanocki:

So we're going to go over our five top tips. We're going to make it quick. The first one, max, your margin. No kidding, but what does that mean? So this is the story. Let's go back to 2014. A younger Drew Sanocki was CMO of this brand Karmaloop. We bought it out of bankruptcy or we ended up owning it out of bankruptcy. There were rumors that Kanye would get it. It was like one of the first iconic online brands—it might've even been one of the biggest from 2000 to 2010 and sold streetwear. Who's going to buy it? Kanye or Drew Sanocki’s group, who's going to buy? They're very similar. Hard to tell apart. Kanye actually never ever showed up to get it. We ended up owning the asset. We had to grow it out of bankruptcy. We got it right before Black Friday and all the work went into Black Friday.

They juice sales through Black Friday. They had it like an epic revenue line through Black Friday, Cyber Monday, and when we ran the numbers shortly after, it was sort of eye opening that we didn't make any money, right? The business actually lost money for that four or five days, not a lot, but that's why they were in bankruptcy. So it was my first experience with an epic failure over cyber week and I started thinking about it and doing research about it. I wrote this article which is up on Nerd Marketing. It's all about a little bit of the phenomenon that goes on over Black Friday, and so we all know there are epic sales and they drive epic demand, but I want everybody to realize that it's a self-fulfilling thing that is reinforced by the media that shoppers go and it's all, everybody talks about that shoppers are shopping from Friday to Monday, but when you step back and look at your Q4 Q3 in aggregate, the first thing you realize is you are not creating new demand over that four day period.

What you're simply doing is reallocating demand from somewhere else in the quarter, late Q3 to some other period in Q4 to that four day extended weekend. So that's important because a lot of us think, oh, it's a big acquisition holiday. We're going to acquire all these new customers over those four days. If you look at aggregate over a lot of data sets, the realization is you're not making the pie any larger for your brand over cyber week. What you're doing is just reallocating demand from somewhere else in the quarter as the media machine goes and hypes up Cyber Week, more and more people who would've bought November 1st are just going to say, I'm going to wait to buy from this brand until cyber week just to see what kind of deal's out there. I do that. Everybody's doing that, which in and of itself isn't that.

Okay, so we're reallocating demand. We've created this holiday. We're not creating new demand, we're just reallocating. Well, what's the problem with that? The main problem is that we are reallocating from full margin purchases to discounted purchases because we've trained customers to buy on discount during cyber week. So essentially you get this phenomenon where brands all of a sudden go from a situation 20 years ago where they would be very profitable over cyber week to a situation like in Karmaloop's case where they actually can lose money because all they've done is swap in discounted, promoted purchases for full margin ones. You get that, Mike? I got it. That's what's going on and that's the environment that we all have to navigate. And so what do you do about it? I think at your core level, you really have to know your margin structure, your gross margin on every purchase.

You got to know the lifetime value of all your customers. If they come in today, what are they worth over the next six months? Because you can bleed cash quickly. You've got to think of other ways to maximize. It is an event. As a marketing event, you're going to get a lot of eyeballs. How do you maximize the margin during those four days when everybody out there is sort of pounding the drum on discounts? This is your time for upsells and cross sells. It's your time for loss leaders. It's your time to come up with a great promotion that has the potential to go viral and get shared and is really exciting to pull people in. But then you also want to upsell a checkout for a higher margin item to make sure you make money. This is what we did at Karmaloops. We came up with some Black Friday offer that was the headline, but when people came in and they added that to cart, they got the upsell for just a straight up white T-shirt, which we knew we made money on even at nine bucks. It was a limited time offer. We didn't even worry about the tech about doing upsells in checkout. We just did a simple email that went out immediately after they ordered that pushed this. All the company's margin for Black Friday came from this right from the upsell. How

 Michael Epstein:

Much can you make on something like this at Car Loop

Drew Sanocki:

Drew 500 K in incremental profit from this one little upsell? So taking a step back the first lesson, know the dynamics of Black Friday, cyber Monday. Know that it's not new demand that's coming to your site, it's reallocated demand from the rest of the quarter, maybe from the end of Q3. Realize that most brands out there are swapping full margin purchases for discounted ones and you've just got to be on top of the numbers. You've got to either realize you're going to make money with a discounted offer or lean into your cross-sells your upsells and get a little bit of margin on ancillary purchases. That's learning number one, learning. Number two, don't bleed cash. I went back to Carlo 2014. This is auto anything in 2018. So this was another big sort of busted retailer at the time. We talked about the unity economics and the gross margin on your Black Friday or core offer here. I think it's helpful to look at another way you can bleed cash really easily and quickly is on your paid spend. And Mike, you were the CMO there. I was the CEO, but Mike was on top of this and maybe kind of putting you on the spot here, but do you want to talk through how to not bleed cash on paid?

 Michael Epstein:

Yeah, there's a lot of, you probably know if you start all your ad spend the week leading up to Black Friday, so is everybody else and CPCs and CPMs go through the roof and you're just trying to capture that demand when it's most competitive and your spend is just going to go nuts. What we did at AutoAnything and some of the other companies that we ran, and it is a little bit harder to do that now. Now you have less visibility into attribution after a certain period of time. We created this model where we sort of tracked latency with attribution, meaning we saw kind of how much revenue was attributed one day after click and three days after click and 14 and 30, and then we could sort of model out how long people were waiting to actually convert from the time that they clicked.

And then we could sort of back into when we wanted to start ramping up spend to capture those eyeballs when they were more in a discovery and shopping phase, but not necessarily ready to pull the trigger. But we knew we were getting in front of them when they were doing that research, when they were thinking about what they wanted to buy over Black Friday, but weeks before the actual Black Friday event. So we could acquire those impressions, those eyeballs, that traffic at a much, much lower cost knowing that those were people that were highly likely to begin converting over the most competitive period. So we could manage our spend better that way by acquiring more audiences and awareness at a lower cost. We still spent over the week during Black Friday and Cyber Monday of course, but we didn't have to be as aggressive thinking like we had to throw all of our budget into that period when it was at its most expensive.

Drew Sanocki:

So all of you CEOs and CMOs who are listening to this right now, question your ad buyer, what's our click to buy time? What is the time between when someone clicks on the ad to when they buy? And Mike, you didn't touch on this, but at auto anything, we were up against our competitors and paid Walmart, Amazon, and AutoZone, all of them had way deeper pockets than we do. Surprise, surprise, all of them had almost limitless paid budgets for Black Friday to Cyber Monday. We did not want to get in a bidding war against any of them, so the only opportunity was to play the game a little bit smarter.

So ramp up our spend in the days leading up throttle back because we knew that traffic was going to then come back and convert during a key period of time and instead lean into lower cost channels like email, SMS and direct mail on cyber week. If you're not paying attention to paid and if you don't know your click to buy time, you could lose a lot of money. The big boys enter the market those four days. They've got the pockets. Third, learning, make recency your friend. I mean we talk about the power of win backs all the time, winning back customers who previously bought from you. It's a very attractive audience to go after and probably no time better than Black Friday to know, not only to mine your previous customer data, but kind of know how far back you can go, right? Do you go two years back, three years back, five years back for a lot of these big brands?

I mean AutoAnything? We probably had several million customers in our database, right? How far back do you go? And this is some PostPilot data from a company that illustrates the power recency. The short answer is like you go back farther than you think. So this brand, this is in the form of a birthday mailer, right? So went out to cohorts going 180 days to a year, a year to two to three to 4, 5, 5 years, five years back and in separate cohorts, and the first thing you should see is the ROAS goes down, right? Cost per conversion goes up. This will be the same whether it's email, SMS like postcards in this case. But the general idea is the customer that last ordered from you last week is always more likely to buy from you again than the customer who last ordered from you five years ago. Okay? So that's why the ROAS goes down over time. The customer who last ordered from you 10 years ago might have a zero, right? That group, that segment, lower response rates, lower conversion rates, higher cost of conversion to get them to come back.

 Michael Epstein:

Yeah, I think the two big takeaways here, drew, is one, this brand went back in that two to four year segment. They were still getting a 1.4 x for them. That was perfectly good. They had good margins, they had great LTV. Once you got that person back, they weren't just making that one purchase again, it was a consumable product, so they were making multiple purchases. This was a big win going back four years profitably. And then the second big takeaway is they tested this with a birthday campaign prior to Black Friday Cyber Monday. The mistake that we see so many brands make is they test these things over Black Friday, cyber Monday weekend and they'll go light on that test and they won't have the data in advance of Black Friday, cyber Monday to know how deep can we go into our customer file and expect to get profitable reactivation, and they realize after the fact, wow, we actually could have gone way bigger with this or gone back way further with this based on the results we got over Black Friday, cyber Monday, but you're too late at that point. The period's over. So getting this data prior to that big period is super valuable.

Drew Sanocki:

First thing you see, the ROAS definitely goes down over time. However, second thing you see is it's still acceptable depending on your product and your margin three, four years out for this brand, what is it for your brand? And that's something you want to test for these guys like a 1.4 and this cost per conversion was still better than prospecting new customers on meta over Black Friday. So I would recommend a recency test where you bucket your customers. Could be what did they do every 180 days here, but it could be every 90 days, even every 30 days. You go back several years and you get a sense of, okay, where's the cutoff? Where do I stop making money? Could be six months ago, could be four years ago. Now when you go to Black Friday, you know how far back you can go to really drive a lot of volume, make recency your friend. You can go back farther than you think and it's still more attractive than paid. So your owned audience channels where you can market based on recency of purchase email, SMS and direct mail have to be core to a low cost effective Black Friday strategy. And as Mike said, do this kind of test now. I mean we could do it at PostPilot, you could do it through Klaviyo, get a sense of how far back you can go in your customer data.

 Michael Epstein:

Yeah, the big thing, and we're going to touch on it right in this section is those folks were on the email list the entire time and hadn't converted in years. Once they got the direct mail piece is actually when they were able to reactivate them. They'd just been ignoring their emails for years at that point. But good segue to number four here.

Drew Sanocki:

Yeah, leverage out of home. Mike and I now run a direct mail software business. We're not just saying this, the time to shine for direct mail is really Black Friday, cyber Monday for a number of theoretical reasons and actual reasons, it's our time to shine. The big reason is everybody's best audience are your previous buyers and everybody should be nodding your head now, right? As a marketer, I would rather market to previous buyers from my company than a brand new prospecting audience, right? And you're like, yeah, okay. Of course, remarketing works, email works because of that. Where do you do a lot of that? Well, you do a lot of that in Klaviyo or in Omnis Send or in Sendlane. You do a lot of that in email service providers via email. However, when you actually look at the data, you start to realize that not everybody in Klaviyo, not everybody in your email service provider who has bought from you before can actually hear from you.

So on this pie chart, you think this is my universe of previous buyers, everybody who's bought from my brand before, a very rich audience as we all agree easier and cheaper to market to this audience than it is to prospect. We all agree. We think it's the whole pie. I might have a million customers that I can market to, that's great, but when you look at the data, how many of those have actually subscribed? How many of those who have subscribed are still subscribed? In my experience, it cuts that down to maybe a third. Maybe a third of my previous buyers have actually subscribed to my brand, to my email at some point. And then how many of those are opening my emails? How many are still active? I would say Karmaloop,  AutoAnything, five or six other brands we've worked at probably 10%. You can actually test it yourself.

Go into your email software now create two segments, create one segment of all buyers. This is from Overtone, which is a haircare brand I own, so overtone in Klaviyo. Show me everyone who ordered product at least once. I'm getting 1.6 million customers. Wow, that's a lot to work with. We can email all these guys. We can sell 'em everything, right? Well wait a minute, create a second audience. It's a subsegment of the first. Everybody who has not only ordered product once over all time but has opened an email in the last 60 days or 90 or 180 or whatever, but has opened an email recently and hasn't unsubscribed boom for overtone. Nine 9% of this massively rich audience is actually the audience that I can market to via email and SMS in Klaviyo. That leaves 91% that I can't, I mean, do I want to drop a postcard to all?

91% might be expensive, but the point is there's only one channel that allows you to market to everybody because direct mail does not require an opt-in. You have to honor and opt out, but it's like the inverse of email where email, they opt in, they have to opt in direct mail. You can just drop a piece of mail to them. This is why Mike and I started PostPilot is because at every brand we've run, we realized this was a massive opportunity. You buy the brand, you get a hold of Karmaloop, you get a hold of AutoAnything. You get a hold of Overtone and you realize, hey, their core retention work is only on 9% of their previous buyers. What if we were to extend it? What if we were to double that and send out some high probability direct mail campaigns? That means we could increase the top line and bottom line 10, 20% within weeks, so that's where Post Piot came from.

That's the opportunity for everybody. Why it's super important over Black Friday because from the previous example, you can now go back and win back so many of these previous buyers who purchased from you over the past year. This other phenomenon that goes on over Black Friday where your inbox is just saturated as a customer, like every newsletter you're on, every newsletter you're subscribed to, they're going to send you Black Friday offers, I don't know AutoAnything. We probably sent out five on Black Friday and you're going to get SMSs. This is what's your customer is dealing with on Black Friday to Cyber Monday. When they check their phones, it's hard to stand out, right? I got a hundred emails from brands, which 1:00 AM I going to open versus direct mail, which goes into the mailbox and it's easier to stand out. I know a lot of people don't believe the stat.

90% of people who receive direct mail look at it, even if it's junk mail and you always get these curmudgeonly people on these calls. I always throw junk mail away, okay, you're in the 10% percent. You also look at it before you throw it away. That's right. You look at it, that's a whole thing and never more than over cyber week. You take your core offer, the one that's like minting profits for you over those four or five days. You've got it going out an email, you've got it going out an SMS, and you've cloned it into a bigger audience with direct mail and you're going to rake it in, right? We've got that hex clad case study I think on the site. What did they do? $200,000? I dunno. There's just some massive amount on their Black Friday campaign by doing just that one thing, so that's our lesson learned. Number four, take what's working. Take your core, offer your core Black Friday offer, flip it into direct mail. You're going to tap a much bigger audience and you're going to get in front of more people. Oh, by the way, we'll do it for you. Flip us the offer, flip us some creative, flip us the email you're planning on running. We can clone it. We can build the audience for you. Do the recency test and get it undo. Get it into a Black Friday campaign. We'll even

 Michael Epstein:

Do your creative too.

Drew Sanocki:

Yeah, so take us up on it. Learning number five, engineer a second sale. This kind of went on my radar years ago, this big British retailer, Argos had epic sales, epic revenue levels over their Black Friday, and then they missed their profitability forecast because of the reasons we talked about. In number one, they discounted too much, which just means you've got to engineer a second sale. The brands that win are going to engineer a second, I would say full margin purchase for all these customers that are buying over Black Friday. I think that's the secret that no one talks about is if you've got a second purchase campaign going on based on these customers that come in and order over cyber week, that triggers a purchase a month later, that's at full margin. That's when you make your money. Huge win. Yeah. This is the general idea.

This is a PostPilot campaign, but you could translate this into Klaviyo. You could translate it into Postscript. Here's the concept for all new customers. You want to trigger a campaign so that they buy again in X days for overtone hair color brand. We knew if they haven't come back and bought again in 75 days, we wanted to print and send this card. We got the same offer going out in email. We got the same offer going out in SMS. It engineers a second purchase and you could see it's done really well. How do you know when to send that campaign? Be it in email SMS postcards? You look at common customer behavior, right? Selling BMWs is very different than selling toilet paper, right? They have different life cycles. A BMWs is 10 years, right? Toilet paper might be 30 days or hair color 30 days. You want to look at what's called your interpurchase latency report. That means customers come in here on the left side and oh, within the first month at overtone, 44% of my customers came back to buy a second time. Of

 Michael Epstein:

The customers that bought a second time, 44% of 'em did it within the first 30 days,

Drew Sanocki:

64% of the customers who buy two times 64% have come back within the first two months, 77 within the first three months. Does that make sense to everybody who cares? Well, as a marketer, this is telling me let's choose like 85% for the first three months before 85%. Your customer is still likely to come back. You should have that mentality. That means only after call it three months, the customer becomes less and less likely to ever come back. So what it tells me is during the first three months, what do you do? How do you market to that customer? You send them full margin things to buy. I only want a discount. I only want to start giving away margin after the three month period because only then is the customer not likely to come back. I don't want to spend my promotion dollars when I don't have to, when she's likely to come back anyway, I want to show her more stuff to buy.

It's really helpful to do an intra purchase latency report for yourself. It's no coincidence. This is overtone that we chose 75 days here to start discounting. We've got 15% off 40 here. It's a single use coupon for that recipient, by the way, generated an app, but the idea is before the 75 day mark, we've got some other stuff going out, which is like selling full margin stuff. Hey, you might like the conditioner or the bleach. Only at 75 days do we start going promotional. That's all driven off this data, and so every marketer should know their customer's inter purchase latency.

 Michael Epstein:

This tells you when you need to go hard on getting that person because basically what this is telling you is once that person gets to six months, they're gone. You're never going to see 'em again. If you haven't really pushed to get that second sale prior to that time period, you have almost no chance of getting them back, and this varies by brand. As Drew said, different data for different brands, but you look at your brand, some people can go back over a year and still target those people and get a chunk of them back. Others can go three months or six months, but this is really, really important data because you got to know when you got to be going all out to get that customer back before you have a very, very low chance of doing that.

Drew Sanocki:

You don't get this data from Klaviyo. I think it might be in Triple Whale or Lifetime. I'm not sure. There are some apps you could pay for to get it. It's free in PostPilot, so you add the app. You don't have to talk to us at all. If you add the app, it's going to unlock this little report section where one of their key reports is that time between purchases report. So worth doing for all you CMOs out there know your intra purchase latency as you roll it forward into the holiday season. It's sort of critical to engineering a second purchase, a high-margin purchase from everybody who comes in and orders over Black Friday, cyber Monday and a bonus lesson. Make

 Michael Epstein:

This is an exciting period for your team. Everybody obviously is going to be stressed, working hard. How do we bring a little levity? How do we bring a little fun to this stressful, crazy period?

Drew Sanocki:

This is it. Have fun Black Friday, I guess we take off our marketer hat now and put on our leadership hats. In AutoAnything's case, we buy bankrupt companies. They're demoralized. There's no energy. Everybody's disillusioned with management and how the company's been run, so we try to breathe some life into it and I mean we had this war room and you could see all the flags of the world, but we had a couple key things to highlight here. We've got a megaphone, very useful, like to go out on the sales floor and yell at everybody to sell more automotive products. We had several Nerf guns, a lot of camo. We had a big inflatable duck. Karlov is out here with the Get It Done T-shirt, which we all were like, yes, this guy's got a bandana on his head. We had Battleship out, right? Yeah, it was awesome.

It was fun. I think our advice is, have fun with this as much as you can make it into an event. It was such a fun time at these brands to have around a lot of the energy and the ones that had sales teams. We had a pretty big sales team at AutoAnything. It really translated into performance. Just getting that hype going helped a lot. So that's it. I would say our top five lessons after 50 years, know your economics. Know the dynamics of cyber week. Don't bleed cash, especially unpaid. Make recency your friend. You could go way back and be profitable. Run some recency tests. Leverage out of home to really stand out and reduce your cac, expand your audience, and then be sure to engineer a second sale and final the bonus lesson. Get your team pumped to do it. You're going to have fun. That's all we got on our live. Thanks for joining everybody. Have a good rest of your week. Thanks everybody.

Announcer:

Thanks for listening to Nerd Marketing. Don't forget to check out all of the other great episodes, some of which include interviews with e-commerce Marketing Masters, working with Mr. Beast and Joe Rogan, plus Drew and Michael's experiences in private equity. Advice from VC firms on what they look for in investments and so much more like share, subscribe, and tune in every week for a new episode.