[DECODED] The Secret to Successful Product Development

Phillip: [00:00:02] Welcome to Decoded, a podcast by Future Commerce brought to you in partnership with BigCommerce. We often take for granted the steady stream of new we have in the world. New cars, New tech. New podcasts. The new fall collection. The hot new restaurant. But have you ever wondered how those new things come into being? For a retailer or for a brand, making something new is part of the job. But despite the advances in technology and a thriving service industry that surrounds eCommerce, it's not always as simple as one, two, three. This season on Decoded, we're going to break down the ways that winning brands build and launch new products, how decisions are made and how goals are set, and how an entire organization collaborates effectively to bring a new product to life. I'm your host, Phillip Jackson.

Aaron: [00:01:14] And I'm Aaron, director of Competitive Strategy at BigCommerce.

Phillip: [00:01:17] And this is Decoded, presented by BigCommerce. Today we are kicking off our second season of Decoded where we dive into various aspects of our industry, the eCommerce retail industry, and how brands and retailers serve their customers. And what better way do they serve their customers, Aaron, but by creating products that people love and want to buy.

Aaron: [00:01:48] I think it's because we've been around in the industry for a while, Phillip, and we know that [00:01:53] the products that we click on, on a website, the things that we add to our cart are really just the tip of a very, very large iceberg of thought and care and work and design that goes into getting it into a place where not only we as consumers want to buy it, but that we even knew about the product in the first place. [00:02:11] And so knowing how much institutional effort is put into that process worldwide at enormous amounts of scale, I think it's a topic worthy of decoding.

Phillip: [00:02:26] Yeah, it is worthy of decoding and certainly worthy of examination because I think we often take for granted that the things that we know and love, that we buy in this world and even in the industry, the things that we create and market and sell do require a ton of planning and consideration and collaboration in an organization and in its partner organizations to bring about and actually to make. And that's what we're going to cover here this season. So Season 2 of Decoded is going to explore this industry from the vantage point of different roles inside of a company that sells goods online. And as we examine that and how those products are created, we're going to figure out there's a life cycle in business in each of these roles that are required to manage so that these things actually come to be. So we're going to take a look at maybe some of the business units as we're decoding this idea of how a product comes to market.

Aaron: [00:03:22] I'd like to hear a little bit from folks who have been on the strategy side, people who decide what to build, how to build it, how to expand, and how those folks approach product development and product management. I think the marketers, everybody involved in taking a product to market, letting the audience know there's a new thing and you should buy it. And those marketers, of course, have to interact with technologists who actually put the... This is an eCommerce podcast, right? The people who put the products out on the web across various channels with all of the information and facilitate that transaction in whatever language and currency someone wishes to buy in. I think talking about people who set growth goals in an organization. Folks who decide what is success. What are we actually measuring? How do I know that this product is succeeding? How might I adjust this product later on in its life cycle to serve more customers? And I think also customer service is a big part of that. And so this is maybe the unsung role in digital commerce is the finance folks, the money people who make it all happen. And there are so many different ways in which all of these roles and groups and perspectives have to come together. So that iceberg that I was talking about, all of these people have to come together for a common purpose. And that's what we're going to get into.

Phillip: [00:04:46] One thing that's come up over and over in our planning stage of creating this season of Decoded is who sets the goal in the organization, and maybe even further back going further upstream, who decided that something new needed to be made in order to create a new goal and does that goal always align to growth? And already in our first episode here today, we're going to hear that maybe not all goals are aligned to growth. There are more goals than just revenue goals in a business. And that I think is worth examination because we don't talk about that enough especially in business media, but in particular in the eCommerce realm.

Aaron: [00:05:31] Yes, absolutely. There's definitely been a very I think especially in the DTC world over the last few years, a real focus on simply top-line growth. Once you get into having an assortment of products, you're trying to be a category leader across multiple categories, you have multiple stakeholders who you need to satisfy, I think it gets a little more complicated, would be my guess.

Phillip: [00:05:56] I think you asked the question if Liquid Death were to make a new flavor, if they were to make a new SKU, how do they decide what flavor it should be? Who do they talk to and who makes that decision in an organization? And while we may not be talking directly to Liquid Death, we may be talking to businesses of different sizes and scales and serve different realms of customers, I think everybody has a unique perspective on who it is that makes that decision in an organization. And sometimes it's not people that work for that business. Sometimes you have to look from the outside.

Aaron: [00:06:31] It can be very easy for especially a growing business to live in kind of an echo chamber. It can be very easy for a business to [00:06:38]... If you're only listening to your existing customers, you're only listening to your existing fans, you can become actually fairly stale. And I think any kind of business that wants to evolve and grow is always looking to challenge. [00:06:51] It's always looking to push the envelope on what is success and what are we doing and are we reaching the maximum number of people possible. And that's where it's great to find people from outside your existing orbit, to do the research, to talk to, to interview, and learn just how you can be the most effective at your job.

Phillip: [00:07:11] Tell us a little bit about our guests, and then we're going to listen in to part of our conversation here on this first episode.

Aaron: [00:07:18] So today, we're going to be joined by Loretta Soffe, who is currently the SVP of Global Retail at Assemble, which is a digital agency and partner that serves a wide variety of customers, but they are also BigCommerce partners. Loretta has had a long history in this business. She was an Executive Vice President at Nordstrom for quite some time. Of course, she's been a business consultant at a small company that you might have heard of, Phillip. It's called Boston Consulting Group, and she did quite a lot of retail practice for them. She's a guest lecturer at Columbia Business School and, of course, has her own consulting brand as well. So she has seen every perspective of the retail industry from the management consulting side to the assortment retail leadership side. And even, I think, this is really interesting on the teaching side of bringing and imparting her lessons learned to the next generation of business leaders. And there's nothing like teaching to give you a perspective on what works, what doesn't, and really forces you to distill into, I think, the really key lessons learned from a lifetime spent in an industry.

Phillip: [00:08:41] Welcome to the show, Loretta.

Loretta: [00:08:42] Thank you so much. Thanks for having me. Today, I am leading the global retail practice at Assemble, and I think if I was to summarize it before I give you a little more detail, I feel like I'm the translator. I'm the translator between what operators and owners and any executives on the retail brand side need, what they're recognizing as opportunities or challenges or pain points, and then how technology can enable and solve for those. So I hear what they say. I understand what they need. I've been in their shoes before and I can quickly kind of transfer that and pass it off to my team at Assemble, which could be engineers, architects, developers, or designers, and they can uniquely solve the problem. So that's really my role. I'm bridging the gap between our four practice areas. We are a consulting strategy-led agency and then we've got design, engineering, and development, and data practices. And so I'm kind of bridging all of those together for whatever and however retailers need to kind of evolve and thrive.

Phillip: [00:09:58] Is it true to say that retailers need to grow year over year to evolve and thrive and to stay modern? What's your gut reaction to that?

Loretta: [00:10:10] You know, not necessarily. [00:10:12] You don't need to grow to thrive. I think what you need to do is you need to be relevant. You need to stay close to your customer. You need to evolve your product or your product offering, your service offering. But growth isn't for everybody. A profitable business that is contained to a certain size, that can be just fine for a certain product category or a certain business or a certain business owner. They're satisfied with what they're doing and they're doing it really well. For [00:10:45] others, if they do want to grow and thrive, it's challenging. It can be done and it requires people, process, and technology. And it's kind of that balance of all three that are necessary and in concert with each other, which is kind of where we come in.

Phillip: [00:11:05] One of the first key concepts in Decoded is trying to dispel some myths that not everything that's made in the world is due just to try to get some sort of incremental growth. So when we're thinking through this in this season, Aaron, how do you think that we should sort of approach maybe breaking down, first of all, just identifying do we need to make something new as a business? Maybe that's where we start is asking that question.

Aaron: [00:11:33] I'd be interested to hear Loretta's thoughts on this. How companies decide to make that decision of we want to make a new product, we want to break into a new market. Maybe we do want to grow, or we want to stay relevant maybe, to your point. How do I decide as a business stakeholder, as an executive, as a decision maker with a brand, how to do that, what that product should look like, how I should take it to market? I'd love to hear your take on how you've seen that unfold in your past careers.

Loretta: [00:12:02] I think that there's a natural inclination for product developers, owners, and entrepreneurs to chase the competition. So they see someone do something and are like, "Oh, I better do that too." Well, then you're going to be constantly chasing and kind of become a victim of like a me too kind of "I should do that, I should do that" mentality. We were brought up at Nordstrom to always be aware and students of the competition. But the philosophy that the Nordstrom family imparted in all of us, which I firmly believe, is let's be the best Nordstrom that we can be. And so that makes you turn not away from the competition, but it makes you consider the competition, but turn towards your customer and what's going to be best for the customer. What do they expect, want or what will they be kind of surprised with if we develop the next iteration of something? And it could be as simple as a white t-shirt, but let's develop another white t-shirt that maybe is an inch shorter in length or a quarter inch narrower in width, or it might have, you know, X percent of a different fabrication than just 100% cotton because our customer is telling us that they appreciate these certain values, product features, or performance enhancement within their garment. So for us and for where I sit in terms of product development, it has to start with the customer. Can you deliver something more efficiently? Can you deliver something just a tiny bit better? Can you surprise them with something just a little bit more? And I think [00:14:02] when you start that way and anchored in a customer, your decisions are going to have a little bit more longevity instead of trying to keep chasing the competition. The competition is going to be moving around like crazy and who knows what filter they're putting things through. But if you put it through the filter of a customer and their wants, desires, expectations and how can you kind of continue to delight them, I think you're going to be much better served. [00:14:32]

Phillip: [00:14:40] Is there a difference in your experience, Loretta, of businesses that are successful in launching products by having a default customer-centricity perspective or being proactive versus reactive and sort of chasing competition? And how do you break out of that cycle? Because it seems to me that like, maybe not every business is in a virtuous cycle there. Is that when you start looking from outside of the organization to help you do something really transformative or is it something less exciting than that? Maybe someone internally can lead the charge.

Loretta: [00:15:18] Yeah. Oh my gosh. Okay. So many ways we could kind of go about addressing that. I think that to start with, one of the first topics you brought up, is it proactive or is it reactive? And retailers by nature are kind of reactive historians always kind of looking to like, what did we sell yesterday? What did we sell last year? How did that brand perform in the past? How did the eCommerce store perform last month, last quarter, last year? So it's really hard to break out of that cycle. You have to have leadership that is comfortable with projecting forward, and most retailers aren't comfortable with that. And so I think it's carving out that space to imagine what's possible. And I think when you again, it goes back to that customer again when you think about what does our customer like? What's going on in their life, in that season, in that region? And if you kind of channel it that way, ideas flow a lot more freely than if you are constrained by what happened and you're trying to react to what happened. Where I think you are best served is you got to either bring in someone that's going to prompt those conversations. You have to have that hired into your organization. You might have to have consultants that kind of serve as a fractional C-suite or that maybe can spearhead like an innovation lab. What I found is when you are kind of knee-deep in the business, you're exactly that. You're in the business and there are so many buyers every day. It's almost like one of the hidden benefits, big benefits of hiring outside consultants is they force you because they have time on your calendar to work on the business. And it doesn't have to be a ton of time, but it's if you were to look at the allocation of time in versus on for most people on a day like today, it's going to be like 0 to 5% on the business. When they hire and pay for a consultant that's going to ask them about their 2 to 3 year plan, their product development cycle, their evolution of product, their innovation in any subject that touches the business, and how much they're spending on that stuff, they're going to be like, "Oh, shoot, none." And so I think it's like that's like literally one of the reasons to hire outside help is to free you up and force you as an operator to work on the business. Because if you don't, two years is going to come by surprise and you're not going to be prepared. You haven't really thought through how to evolve it, how to visualize it.

Phillip: [00:18:44] I think you've sat on both sides of the table, right? In retail leadership, category leadership, and then big retail leadership, digital transformation inside of sort of legacy retail businesses. And then on the management consulting side, I think you've done a fair bit of that. Give us a perspective on when that works really well, bringing in management consulting, and when it doesn't go so well. What are the sort of differences there and how can you make the most of looking to management consulting to help you bring this like, let's say it's a new product to life?

Loretta: [00:20:08] Yeah. So yeah, you're right. I have been on both sides. I'll tell you, in some of my darkest days when I felt like I needed help to find the answers to transform a big, huge business, I knew I needed outside help to give me a fresh perspective and it worked really well. And it worked really well because I, as the category leader for women's wear, was able to make the choice and was supported by the Nordstrom family. I think when it's a directive and owners or executives hire it for a category leader and they're kind of together by circumstance, not by choice, that's when it's not as productive. But I was able to kind of interview and handpick the people that supported me and outline what it is we wanted to accomplish and start with just fundamental questions. And they would honestly come to my office with decks that were three inches high. And I would say, "You know what? Love you, but don't have time for that. Come back with an executive summary for me and then when I have the questions, we'll go reference that three inch deck. But I'm not starting with that." Retail moves too fast and you have too much to do all day, every day, developing product, managing inventory, building channels, creating marketing, deciding on store planning concepts that if they were to have come to me with decks and reports and this, that and the other, there's just no way. So I found a rhythm that worked with the team that represented the consulting firm that really helped us make good decisions, helped us plan for the future. And I'm telling you, they helped educate myself and my team so that when I actually left Nordstrom and went on the other side, I knew what good looked like. And then I knew what someone like me as the operator that was scrambling every day running a $2 billion PNL needed in the form of a management consultant. One thing I think is the most important that I kind of pride myself on is you might be hired by a CEO. That might be the individual that's signing your check, but the people that are actually running the business and making decisions is who you need to be with. And so I would always check in with the CEO, make sure that we were on point with business objectives. And then I would go sit shoulder to shoulder with the designer, the technical designer, the product developer, the buyer, the marketer, so that I could actually really see under the hood what was going on in the business and I could teach them how to think like I think and see like I see. And then when my project or assignment was finished, I felt good walking away that not only did I help the business with the project outlined, but I hope and I think I helped the future of the business and those individuals by imparting some wisdom.

Aaron: [00:23:47] That's really great thoughts there. And a lot to unpack, too, because it's the who makes a good consultant question, and I think I've done a little bit of that as well. And it's definitely it's about adoption. [00:24:01] It's not enough to simply have good ideas or be able to articulate the good if you cannot convince and persuade and adapt it to the needs of the business and the stakeholders. [00:24:10] You also said something really interesting that stuck out to me about retailers being reactive and typically sort of looking at what did we do last season. What did we do last quarter? You had talked earlier about the virtuous cycle of chasing your competition. It seems that it could be maybe a retailer can be their own competition and not necessarily in a good way in that sense by chasing their own past a little bit and maybe not innovating and simply iterating on, lightly iterating on, something that worked for them maybe in a past season, in the past year or even a past decade in some senses. So I'm super curious. So either and you can either field this one as a retail leader or as a management consultant or both. I'd be interested to hear both sides of this. The vision for what is good for how to iterate, how to improve, how to make a brand new product, or improve a product that's already there, who is coming up with the specific targets around that new product, that new line, maybe that new store? How do the business goals or the product performance goals get attached to what is at the time a very nascent idea? Because we know we need to do something. We're not really sure we're experimenting, but to justify the idea, of course, we need to be able to attach something to it. So walk us through a little bit how that conversation unfolds.

Loretta: [00:25:41] Yeah. Well, I'll start and then ask me more questions to make sure I cover, because when it's so natural, it's easy to kind of gloss over some of the fundamentals. I often would think about answering a question like that first by putting myself in a chair in a boardroom where someone, a product developer, a designer, or a buyer comes forward and says, "Oh my gosh, I want you to fund this new brand, this new item, this new category." And I'm a big believer in the Socratic method of teaching. So I would have my list of questions in my head that I would ask, "Okay, tell me about the customer that's going to buy this," and see how much detail they're able to go into. "Okay, tell me about the competition. Who else has anything like this and where do you sit on a continuum of price and style?" And I'm kind of famous for having people go through a four box grid exercise and so however customers make decisions and it's typically when it comes down to a fashion or, you know, some type of retail item, fashion, apparel, accessories, there's usually a continuum around style on your y axis and probably price. So if Pablo was coming to me with a new item, "Pablo, talk me through the competitive landscape where everyone that you're kind of going up against sits relative to style and price." "Okay, now where are you?" And you're either in a red ocean. It's super crowded and there's lots of demand, but you've thought it through and you're going to stand out or you're in kind of a blue ocean where nobody's there and there's a big opportunity. But I'm going to be a little skeptical because there's a reason nobody's there. So I would want someone to walk me through the competitive landscape and how they're going to compete and lead around price, style, features, and benefits. It could even be how they're going to compete because of personalization, their marketing efforts, their outreach, their co-branding, their celebrity kind of endorsement or plan. There's going to be something there that's going to have to convince me that it's going to stand out. And then how do you plan for it?

Phillip: [00:28:22] How do you, like, calibrate your BS meter? Because everybody has some semblance of like, "I think." Whenever somebody says to me, "I think," it's an immediate red flag. And I'm like, "Why do you think that? Tell me why you think that. Why didn't you say we know or we've discovered?" How do you suss that out in leadership? Because you don't want to follow false signals, right?

Loretta: [00:28:46] It's funny, I learned about that BS meter way back in my day when I was talking myself through something like this. And Blake Nordstrom came into my desk and he was like, "Boom," pretending he hit it and he goes, "Your BS detector is broken. I can't believe you bought that line of answers." So because of that, because of that, I think my BS detector is on higher alert. I would say that series of questions again [00:29:20] if they haven't really dug in and detailed out customer desire, behavior, life stage, and priorities, and if they're not really able to articulate that, the rest of the whole thing is going to be garbage. I mean, it can be food and beverage, it can be accessories, it can be beauty wellness, but you've got to get to a pretty significant and specific level of detail to develop product. And if you're not able to develop that level or have that level of knowledge, your product isn't going to be good enough because you don't even understand what you're going up against. [00:30:01] So I'm an eternal optimist and I kind of feel like I can find like opportunity anywhere, but it's going to fall flat if customer and competition isn't really, really kind of specified and decoded, if you will.

Phillip: [00:30:19] I'm going to play devil's advocate for a second on that and then we'll get kind of get back to the other side of the table as a management consultant, too, because I want to hear the other side of that conversation. But I have to believe that there are efficiencies that exist today, both with technology, SaaS, cloud, and maybe manufacturing processes, offshore manufacturing, I don't know, textile innovation that makes it easier to test and trial than it is to commit to something.

Loretta: [00:30:56] Yeah.

Phillip: [00:30:57] Is that a double-edged sword? And how do you suss that out in this conversation of we're building something new? How do you provide like, does technology and innovation provide a margin of error that is acceptable, that exists today, and maybe we rely too heavily upon today? What's your take on that?

Loretta: [00:31:16] That's a great question. I just went through this in kind of a friendly, consultative manner in the last couple of weeks and efficiency and access make people believe it's easy to create a brand and produce product and bring it to market. And in my workings, two sessions with an aspiring product developer, brand builder, it's like that's like one tenth of the equation because you can access a sewer, because you can access samples and you've got a local artist that can design them does not mean you're going to have a successful product launch. It's so much more than that. And if we're just to talk about the product itself, its fabric, its fit, its price, it's how much to own, and all of those have price tags attached. So it's its size scale. You want to test two different t-shirts, one that's a slim fit, one that's boxy. How many? Okay. Well, 100 each. Okay. Well, how many by size? What's your size run? Is the customer, you know, is he slim, is he muscular? Is he square? So all of those things, all of a sudden, those 100 units became kind of daunting because it's real money. And then how are you going to get noticed? Who's going to build your website, who's going to create your marketing collateral? And we haven't even gotten to the cost of acquisition with a customer. But I think if back to management consulting, whether it's called management consulting or just consulting, it's if you don't get real advice from someone that's actually built brands, managed a PNL, brought products to market, you're not getting good advice. So you can scour the Internet and ask the Internet any question, but if they haven't actually launched a brand or dozens of brands and lost millions of dollars, they're not going to give you the real answer. So I would say back to what makes a good consultant? Someone that's actually had the job that's actually owned the PNL, that's learned the lessons through successes and failures and understands where the landmines are. So in this example, fit is a massive landmine. Being in a room as a consultant with a brand that tried to evolve a men's basic t-shirt, I can't tell you, we went through 24 iterations to evolve, not even launch, but evolve a men's White Crewneck t-shirt because every eighth of the inch matters and every fabric performs different and every fit is just a little different. And as customers, those nuances and specifications, they matter.

Phillip: [00:34:46] My big takeaway here is what Loretta was talking about, the knowledge of the plan is really coming down to having internalized the reason why this is the strategy, why this is the plan, why this is the assortment, this is what we're buying... If you're in the buyer role, you're looking for justification and you want to see ultimately what I think she's saying is conviction.

Aaron: [00:35:12] Right.

Phillip: [00:35:13] And it feels a lot like Shark Tank, actually, to me, where you have to not just know your numbers backward and forward and justify them to someone who is ultimately leveling some kind of critique. But they're actually asking you to develop a conviction. And in this role in particular, you need a lot of conviction because you're making strategic bets. And that's effectively what we're talking about here in this first episode, is there's a lot of betting that happens in retail. If you're a direct to consumer brand, you're betting that the product that you're making and marketing is going to find some fit with the market. If you're a retailer, you're making a bet that an assortment and your merchandising plan for a given season or for a collection will meet your existing customers' needs and desires of you. Betting seems like an unsound business strategy, but that's effectively what we're talking about here.

Aaron: [00:36:16] But it's informed betting, right, Phillip? I think the buyer is not necessarily coming to this and just going with their gut. It's a careful, considered process. But one of the things that, and this was made clear to me even long before I got into the tech world when I was an analyst in the Navy, was that there's a difference between being an analyst and simply presenting to the person above you, a giant stack of information. That's not useful analysis. That's simply Google is a service at some level, which is like, "Here's a bunch of studies, and here they are." You have to draw conclusions. You have to tease conclusions out from that analysis. And you also then to your point, have to be convicted internally that you are presenting a summation or a synthesis of all of those facts and a direction that makes sense. You simply cannot expect your analysis to be valuable if it's simply information. And so that process of like presenting to the buyer, I think we should move into X market or we should move into Y category, there's a lot that's going to go into deciding whether or not you make that call and you can't simply leave it up to a leader to decide on their gut. There has to be data, but there also has to be a theme or a throughline, a conclusion reached from that analysis.

Phillip: [00:37:41] I also like that perspective that you just gave me where the conviction comes through being obsessed with the problem at hand, and the problem for a retailer or for an online retailer, especially in eCommerce, is it's not just about what you're selling. It's that we can quantify every part of the decision-making process. And that leads to its own state of miss signals and misdirections. And that's what I think makes it truly hard in the eCommerce space, is that we can see things like dwell time, consideration, time, number of visits, and that window maybe sometimes gives us false conviction around something that may be working and shifting the blame down the funnel. So the issue isn't the product or the assortment, the merchandising, the pricing, or the promotion, the issue is in the checkout somewhere.

Aaron: [00:38:40] Right.

Phillip: [00:38:41] But I don't think that that's how it works in traditional retail. What do you think that we could probably learn or extrapolate here as to how eCommerce might be differently structured and how developing that conviction in eCommerce might be a different problem space from what traditional retail might encounter?

Aaron: [00:39:02] Great question. It's a blessing and a curse, but one of the consequences of the E in eCommerce is the amount of data that's available, so you can really quantify digital interactions at scale much more accessibly than you can retail in-person interactions at scale. Even understanding things like footfall, understanding things like interactions from behind the counter to somebody who's in your store. Those are challenging to get ahold of in the numbers that you need. But how many people went to my website and clicked on this particular link? I know that and I know that often in real time. And so this is where eCommerce makes it possible for retailers and brands to understand who's using, who's clicking, and what's resonating. But it can also make it very easy for a retailer to over index on digital and also over index on past behavior. Because giving you all that data makes you feel a certain sense of certainty that, you know what a data-driven decision is going to be. But really adding a new product to your mix, you don't have data. It's a new product. You wouldn't have data on it. And so there's always a certain level of intuition and knowing your customer and knowing your market and you can get to that through data, but that's not the complete picture, and so that's where eCommerce is a little different. I think [00:40:34] traditional retail has been very intuition driven and not a lot of data. And eCommerce, I think suffers from the other problem. And I think a successful retailer has to be able to blend both the data and the intuition. [00:40:49] In the software space, there's a certain sort of mythos that's been created around the idea that the software problem is the hardest part of that. The technology problem is the hardest part of that. And if you simply can create the magic, "I'm just going to drop ship some shirts from someone and I'm going to make a really cool brand. And if I have a really nice website, I have solved my problem, and I am now an entrepreneur and a creator, and I am now qualified to hold forth on Twitter to everyone about what a good business strategy should be." Not naming any names at all. But yeah, you're right. There is a lot of that. And I was thinking too, about what you were saying around the goal-setting part of this. And I know we're going to come back to the management consulting thing, but I was thinking in terms of you've got your grid, are you measuring success in terms of market share? Is it new market opening, opening a new market, maybe creating market share where there wasn't any before, or simply expanding market share? I'd love to hear your thoughts about how that gets expressed maybe, and how the goal determines the kind of product and the product strategy that you that you create.

Loretta: [00:42:16] Yeah, I think it's different at different stages of the business. If it's a brand new business, your goal is going to be unit sold, customer engagement, and probably customer retention. I come from the school that sales are the truth. So in any business, if you're in a business of selling stuff, your grade is how much did you sell? Period. And you can get really excited about all those other metrics. But if it doesn't mean you sold more or sold any or sold what you thought, it doesn't count.

Phillip: [00:42:59] That's way harsh, Loretta. That's very black and white. Is it really? Yeah. That's that's pretty... That's pretty decided. That's very decided.

Loretta: [00:43:08] Yeah. Sales are the truth.

Aaron: [00:43:11] I would advocate for margin personally a little bit, too, but that's just me.

Loretta: [00:43:15] Well, yes. Yes. Yeah. Ideally, sales are the truth because you've already factored in that you actually need to have profitable sales. But that's not always the case. Like we had many tough decisions at Nordstrom where we were like, "No, but we're selling $1 million." Yeah, but we're selling $1 million worth of an item with a really low gross margin. That's called bad volume.

Phillip: [00:43:39] Yeah.

Loretta: [00:43:41] And that's really hard to give up, especially if you're a retailer that is reliant on promotional sales. But if you're in the business of profitable sales, good sales at your good regular price margin is your ultimate measuring stick.

Aaron: [00:44:00] Phillip, do you mind if I ask a follow up?

Phillip: [00:44:03] Sure. It's your show, too. Go for it.

Aaron: [00:44:06] Fantastic. So you bring up a really interesting question, too, which is the sort of the category question. So were you ever in conversations where you've got the ugly baby, right? You've got the product that's maybe it's losing money, but it's making up for it in volume. But someone is making the argument that it's increasing sales in an adjacent category. It's a loss leader to drive something else. Or conversely, if you're trying to innovate, have you ever been in a situation where if you innovated on a particular category, on a particular item, you actually might harm sales in an adjacent category? Like would pockets on dresses reduce handbag sales, or something like that? And I pick that because my wife wants pockets on every single dress, and she doesn't carry a handbag.

Phillip: [00:44:58] The dress paradox is what we call this. {laughter}

Aaron: [00:45:00] There's a formal name. There's a formal name.

Loretta: [00:45:04] Okay. So I think you asked two questions. And one is when I think about like when you said like a low margin, high volume item category brand, kind of almost being like a halo effect, I think that just comes down to what's your tolerance. What's your tolerance for lower margin business and its effect on the total? And in some cases like designer, if you don't have a regular price designer customer and they're waiting all year for it to go on sale at the end of a season, that might be a drain on the total margin, however, those designer customers or that designer section in your store might bring aspirational customers in that browse, look and see and then buy the cheaper version. And that halo effect is probably pretty tolerable if it's contained. So I think if you're managing the business, you just have to have that understanding of what's the goal for the total. And every category, segment, and channel isn't going to perform the same. And I'm willing to kind of sacrifice a little here because I know it's going to bring traffic or sales or attention or some halo to my greater... It just can't creep so that it negatively impacts the greater. And I think again, that's where experience, intuition, and the balance of art and science in the business come in where you can have a number of different scenarios. I'm so visual that I would draw three different pies, a pie with no low margin business. Okay, well, what does that look like, feel like, make customers kind of do when they come into our store, our website? Then let's have the hybrid of a little low performing with a lot of high performing and we can tell great stories and/or really big low performing and we can tell amazing stories, but it's going to kill our profit because they only buy on sale. And the answer is probably going to be again, it's going to be a blend of data and economics and intuition and creativity and storytelling and ebb and flow. And maybe there are times at the beginning of the season when you want to like, tell a full designer story, knowing that none of that stuff's going to sell at regular price, so you better not tell too many stories. You better start promoting the stuff that's like high volume, high margin. And so it's just it's that's where the creativity and the experience comes in. The other part of that question you asked about, I think about it as kind of that the, the transfer, the cannibalizing of business. Like you've got the dress you sold ten of with no pockets. Then all of a sudden you introduce a dress with pockets or great features and then you sell zero of the original and ten of the new. Ideally, you're going to kind of do a little bit of a gradual peel back of the onion. And as you sell a little bit less of the one with no pockets, you're going to start to build up the one with pockets and then hopefully you lift the total boat, and that's going to take maybe you add new color and print and shape and silhouette and length and fabric to the one with no pockets. So there's still a reason to buy it as you're introducing and extending the one with pockets. So I think it's just, again, that's the art and the science. [00:49:15] If you're a brand introducing new products, you want to get a bigger share of wallet. So be conscious about not cannibalizing your own business, but adding on. And I think of it as a bigger share of wallet or a bigger piece of the closet. [00:49:31]

Phillip: [00:49:32] Yeah. Oh, shoot. That's really good.

Loretta: [00:49:37] Or even if it's like if you're a brand that offers great stuff for destination vacation, what part of the guy or girl suitcase do you want?

Phillip: [00:49:51] Ooh.

Loretta: [00:49:51] How can you get a bigger part of the suitcase by adding a hoodie into the t-shirt selection, or adding a pair of boardshorts? You get a hoodie, shorts, a t-shirt. Maybe it's a little carryall, maybe it's a tote bag. But when you think about building a brand and owning a customer, think about owning more mind share more share of their wallet, and more share of their closet.

Phillip: [00:50:18] And that's where my $0.02... And what do I know? I don't have the depth of experience, especially in the prestige of retail that you do. But it seems to me like everybody's in a hurry today and they feel like an unlimited amount of capital can help them accomplish almost anything. In reality, I think a lot of things just take time because not everybody can spend their whole life and all of their needs considering your brand and how you fit into it. I know in your role as a guest lecturer at the Columbia Business School, I'm sure you've encountered the next generation of business leaders. What are you making sure to prioritize and what do you want them to come away with? To have learned some of those lessons, maybe without having to have the school of hard knocks along the way?

Loretta: [00:51:07] I'm usually asked to talk about a couple of things and it's how to build a brand, how to take it to market, and how to think about different channels of distribution. My goal in preparing and speaking to those super bright individuals is to teach them the fundamentals. You're not going to teach them anything new about efficiency, about access, about technology. But what I'm going to teach them about is the fundamentals. And as we've talked about already ad nauseum, almost, is you've got to start with the customer. So I take them through my five principles of brand positioning and brand development. And it's so interesting. And I give them stories where we applied this process 20 years ago and the same process I use day in and day out because it works. And it starts, I start with the customer. Who are you making product for? And really like when I say who, that's a whole lecture in itself. Like really, really unpacking to a micro degree, the customer. We then talk about the mission and the vision. What do you want to be famous for? If there's a billboard or a bus that goes by with your brand, what does it say? What does it look like? If there's one person holding a flag at the top of a mountain, what does your flag say? What do you want to be famous for? What's your mission? And then your vision. What's your North Star? What are you really trying to accomplish? So we start with customer, mission, and vision. I walk them through my version of how to dissect the competition. That four box grid. It's foolproof. How to think about the competition, direct and indirect. How do your customers make decisions when they're purchasing? And then finally, it's how are you going to communicate? How are you going to execute? Where are you going to go to market? How and why? And how are you going to get noticed? Often you can get through all four prior points and you can get to that point and that's where the biggest output of resources is. Your biggest risk and the hardest challenge is really getting noticed and acquiring customers. If we could solve for that, we'd be doing something else today.

Phillip: [00:53:50] Despite all of this innovation that we have and despite all of the choices that are made for us, it used to be that you had to even choose what the hardware that went in the rack in your colo would run. It used to be that you had to choose maybe some of these, you had to go out and do market studies about footfall and retail traffic...

Loretta: [00:54:09] That's a word I haven't heard in a while. {laughter}

Phillip: [00:54:12] {laughter} But that's the kind of thing that we sort of take for granted today. But what are we doing with the additional time? The building of brands today isn't necessarily affording us additional time to solve the three fundamentals you just laid out. So what are we doing with that additional time?

Loretta: [00:54:25] There's so much ingenuity, there's so much ambition to bring new products into the ecosystem and there's so much that we don't even know we need. And so when you kind of spin it from what's the pain point to what would be nice to have, then you're like, "Oh wow, now there's a great idea." So I think I would leave it at that. Like we're all customers, we're all consuming information and products across every possible category, and we really don't need much other than like food and water. But it's fun to be surprised and delighted. And when you can think of something and not necessarily put it through the filter of, "I'm solving a problem," because I think that's kind of been the path to "I want to bring something fresh and fun and exciting and new to the market, and I'm going to see how it goes. And I might have kind of a higher idea and purpose about bringing love and life to the universe." Go for it. No one's going to say no to that. And there are so many success stories around that. So I guess I would leave it with the sky's the limit. Creativity breeds newness and innovation and acceptance. People are ready for all that.

Phillip: [00:56:15] So we've covered this concept, this idea that somewhere in the organization we've decided it's time to build a new product and we've covered the when and how do you know that it's time? It seems like that's nuanced. That can come from somewhere in the org, sometimes from leadership, and sometimes the leadership has to bring in someone from the outside. We've also talked about the kinds of research and analysis that goes into making that a reality. Do you think we sufficiently answered the question of how you set the goal in the first place that makes you realize that either you need to make something new or that we've made something new and we need to establish when we know we're successful? Have we answered that yet?

Aaron: [00:56:56] I don't think we have, and I'm not sure that Loretta would say that it's necessarily answerable in one way. My favorite answer is always "It depends."

Phillip: [00:57:04] It depends."

Aaron: [00:57:05] Yeah, I suspect that's hers as well. We talked about how the goals are going to vary based on the business that you're in, which is I think pretty critical, which is one of the reasons why you hire a management consultant instead of simply reading the book from the airplane or the airport bookstore about business strategy and applying all of its lessons generically to your business. You hire somebody who gets to learn your business and then you take their advice because what Loretta had to say really was different people are going to have different goals in that iceberg, in that big structure. You're going to have multiple goals at tension with one another. Growth, sustainable margins, supply chain, customer service, category leadership, and even channel mixes are going to be different. And so I think what she said by not answering that question directly is it depends.

Phillip: [00:58:00] Well, let me ask you, we talked about this obsession with competition and how it can be a bit of a weight in your organization or maybe cause you to chase the wrong paths. What is from your perspective of being competitor obsessed? If you notice that a competitor is outperforming you in a particular category or in a set of features or in pricing, how does that inform the way that you think about what's possible and not saying whether that would change your strategy or change the tactics that you employ, but how do you use that to at least tell us in the organization we know something else is possible out there, or we know that the share of wallet is greater than what we have? Does that tell you that there's room for growth in the organization and therefore we should be aiming for growth? Let's talk through that.

Aaron: [00:58:50] It tells you that there is an appetite for more than maybe you thought there was an appetite for. And the question that you then have to answer is, is that good business for me? Just because it's good business for a competitor doesn't mean it's good business for me. It's a wide world. There's room for a lot of different channels, a lot of different business models, and a lot of different products. We're talking about products. And so I would say that it's a valuable signal to you, do I need to address my strategy because someone else is doing my strategy better than I am? That is a very different internal conversation, a very different conversation with the outside strategy consultant than someone is winning a share of wallet, but that's okay because it's a different share of wallet. I think it depends.

Phillip: [01:00:17] Well, Aaron, I'm really pumped for this season of Decoded. Episode 1 has already been great. What else can we expect to cover in the next four episodes of Decoded?

Aaron: [01:01:14] I'm glad you asked, Phillip. I'm looking forward to talking about how these great products that we've talked about actually get brought into the world and taken to market. It takes a village, and so there's a lot of people that have an opinion and a role in that. And then once it gets launched, I think we'll be talking about goals. We talked about goals. I bet we're going to come back to goals, Phillip.

Phillip: [01:01:36] I bet we will too.

Aaron: [01:01:37] I think we will. I think we will. And I think we'll be talking about measurement strategies. I think we'll be talking about customer service. I think we'll be talking about channels and finance.

Phillip: [01:01:46] And I'm so excited to cover all of that on this season of Decoded. And thank you for listening to this episode of Decoded, by Future Commerce, presented by BigCommerce. Thanks so much for listening to Decoded. You can find more episodes of this podcast and all Future Commerce podcast properties at FutureCommerce.com. You can also subscribe to our newsletter, which comes out three times a week at Future Commerce.com/Subscribe.