How to Talk to Strangers (Customers)

Hi, Leo here. 

I’ve been thinking–the funny thing about the zero-interest-rate policy environment that we’ve left behind is that we’re so unaccustomed to hard times we assume the signs of it are actually symptoms of something else. 

Case in point: In mid-to-late 2021, it was fairly common for everyone in DTC to be blaming poor business performance on iOS 14.5.

Only much later (for the DTC community, at least), when Common Thread Collective began showing the correlation between marketing efficiency and the Consumer Confidence Index, however, did it appear that, maybe, something else was going on, too. 

At the same time, Apple rolled out its infamous software update, consumer confidence began to fall.

Why?

What’s become even more clear with the passage of time was that inflation went from 1.5% to 5%—practically overnight. We didn’t have the data at the moment, per se, but we all felt it.

Suddenly, there was just less money to go around.

Since the start of the year, inflation has remained stubbornly above forecasts, keeping interest rates high and money less available (again). 

Shopify, in fact, got crushed during its earnings call earlier in the month, because it’s forecasting weaker consumer spending in Q2. Walmart, meanwhile, rode a one-day pop on the tails of its earnings call to an all-time high, in part because its growth is coming from higher-income households. (An announcement made only a few months after rolling out a very Target-esque private label line.)

The consumer “slow down” appears to be around the corner, and—if it is—we’re going to feel hard times. This will be new for nearly all DTC brands.

This time, softening consumer demand won’t be because of a Meta issue or Apple privacy changes (if it even was the first time). It will be because consumers aren’t spending as much. 

The main combat against that, thus far, has been for brands to explore additional sales channels. 

But more foundational questions come into play:

How have you built the brand? Are your loyal customers emotionally attached or behaviorally attached?

The answers to these questions, it seems, may be an alternative place to start a strategic planning conversation (especially if you’re discussing a shift).

The answer, along with some customer development, may tell you why your customer is willing to stay with you right now or why your customer is leaving you right now. 

It may tell you whether you’re a brand that is easy to trade out, be it because of price, convenience or a combination thereof. 

It may tell you a lot about whether you’re fulfilling a want for your customer or a need for your customer.

A lot of that may sound like fluff.

But if you’re a purchase in a category that your customer is always going to make—and your customer doesn’t feel emotionally tied to your brand—you may be an easy target for the customer to trade down from.

If you catch this risk, you can begin to dissect the problem pretty quickly:

Do we need to be cheaper? Can we afford to be cheaper? Do we need to be more ubiquitous? How do we do that?

Positioning isn’t just where you fit in the market. Not in this sense. It’s always where you fit with the customer.

The fastest way to find out is to talk with your customers. 

To do that, grab a couple segments and start dialing (or texting or emailing). But start here: 

• Customers whose purchase frequency with you has accelerated

• Customers whose purchase frequency with you has decelerated

You could get fancy and use RFM scoring and whatnot, but really, you’re just looking to learn why people are buying from you more often and why people are buying from you less often. 

You can ask them that question directly, but it’s pretty direct, pretty specific, and will probably evoke a handful of “umms” and “I don’t knows.”

Instead, start higher level and work your way down: 

• What category do they put you in? How long have they been buying from that category? Who else in that category do they buy? Do they use you and a category competitor at the same time? Why? What are they no longer buying from that category?

• When do they buy you? Do they buy you elsewhere? Are you a “treat” or a “necessity”?

• If they’re buying less, are they buying less from the category? Or buying less from you? Are they spending less overall? 

• If they’re buying more, are they buying more from teh category? Or buying more from you? Are they spending more overall?

The answers may tell you why your customer is willing to stay with you or is leaving you right now. But it may also tell you how you might reposition your brand, especially as you learn whether you’re a brand that is easy to trade out, be it because of price, convenience or a combination thereof.

It may tell you a lot about whether you’re fulfilling a want for your customer or a need for your customer.

There are, of course, advantages to both. But you need to know which you are to play to those advantages. 

To date, we’ve become used to the “resilient consumer” narrative, and some of that may be true. Consumer spending does seem to be persistent right now. 

But, looking at the signals, it appears those with the most scale are seeing notable changes in behavior. 

Use their quantitative data as a reason to do your qualitative analysis, and you’ll be able to answer questions everyone previously blamed on Meta.