Ep. 48 | Old vs New Retail with Ed Kleban

Have you ever wondered why the “death of retail” is being proclaimed while a “retail renaissance” is taking place elsewhere? What makes the difference between the old retail guard and the new retailers?  This week host Allison Hartsoe speaks with long time retail executive, Ed Kleban about the mechanisms that traditionally kept retailer separated from their customers. Hear how the new retailers are getting closer to their customer base than ever before. 

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Allison Hartsoe: 00:01 This is the Customer Equity Accelerator. If you are a marketing executive who wants to deliver bottom-line impact by identifying and connecting with revenue generating customers, then this is the show for you. I’m your host, Allison Hartsoe, CEO of Ambition Data. Each week I bring you the leaders behind the customer-centric revolution who share their expert advice. Are you ready to accelerate? Then let’s go!

Allison Hartsoe: 00:32 Welcome everyone. Today’s show is about the changing of the retail guard. And to help me discuss this topic is Ed Kleban. Ed is that founder of Valence, a marketing infrastructure consultancy and also our partner. Ed, welcome to the show.

Ed Kleban: 00:49 Well, hello. How are you?

Allison Hartsoe: 00:51 It’s great to have you here. Could you tell us a little bit more about your background and how you got into retail?

Ed Kleban: 00:58 Of course. So I got my start in the business side, a big ad agency sort of a home for a product, good Burnett, Chicago, um, and uh, you know, have that, uh, on the creative side, then moved to Denver and started my own ad agency. But in 2011, I could really feel that the relationships between advertising agencies and brands were starting to change. I sold my agency and moved out to New York with Loreal and helped them establish their direct consumer business. Um, since then I’ve worked with them both in B2B and B2C combining tap in marketing data for companies as varied as Mary Kay, New York Life, The New Score, as you said, most recently we started this, a consultancy called Valence Marketing Infrastructure.

Allison Hartsoe: 01:51 Oh, that’s a huge background. It’s a lot of accomplishment in a short period of time. But tell us a little bit more about Valence and why this particular company makes sense right now.

Ed Kleban: 02:03 Sure. We’re working with businesses to help them put together the right technical infrastructure to make smart business decisions. You know one of the things we noticed as we talked to companies big and small was the teams who are responsible for choosing and using marketing technology were unprepared to spec software. They didn’t have the time to devote the whole requirements gathering and setting, and they weren’t even sure really how to integrate it. Their new technology, whether it was into the existing technology or into their current processes. Plus when you, when you don’t look at all of your technology together, you start to perpetuate these data silos, so we help companies stay competitive by helping them choose and use the marketing technology, like some of the best direct consumer brands do.

Allison Hartsoe: 02:54 I can certainly emphasize with you they’re about data silos. I think anyone who’s ever worked with data can feel that pain, but let’s dive in a little bit more to retail and, and your background with the retail guard. One of the things we were talking about a while ago that I thought was so interesting, and you alluded to a little bit, in the beginning, was how retail has changed to allow for these new fast, I called them fast retailers, to come to be. Can you tell us a bit about what it was like in retail, particularly 10, 20 years ago, and maybe compare that to what’s happening now?

Ed Kleban: 03:32 Of course, looking back, it’s, it’s, it’s good to have some, uh, some perspective and some gray hairs here. Right? I see that there are a lot of factors that ushered in this era of new retail. Uh, you know, there was a time these brands delivered trust. They delivered trust through multi-million dollar broadcast campaigns in general distribution, you know, I might say something like, Tide is a great cleaning option because I see it everywhere and I just saw a commercial that made me feel really good. Right? But there’s a brand right next to it, it’s I’ve never heard of, but I still spend a premium on that Tide because they’ve earned my trust with these commercials. But today that trust comes more from ratings and reviews or from these sites, independent aggregator sites where they can tell you what’s important and what’s working and what’s not working. So this ability to trust and behind new brands open the door to all of this innovation. At the same time, communication channels and social media allowed every brand to tell its own story. So this is where every copywriter that I knew went out and got new business cards to call themselves, Brand Storytellers.

Ed Kleban: 04:50 But truthfully, that feel good 30-second television spot became less and less effective than an authentic vision and a real creation story shot on an iPhone that really connected with customers. Plus now you can transact business without owning a store, distribute without owning trucks. You could manufacture without owning plants. You could buy just the infrastructure you needed and then if you had to scale, you didn’t have to pay some sort of cost penalty in order to grow. It was this perfect storm of great things that have happened. Some of these brands have the opportunity to grow and to thrive.

Allison Hartsoe: 05:28 I didn’t realize it was happening across all these different areas.

Ed Kleban: 05:33 Well, they were so used to this sort of obfuscated view of the customer. So normally they’d work with an agency who would negotiate with a publisher, who would then drive the customer to a retailer where they would eventually find the brand, that poor brand. They had no understanding of the customer, but the best I could hope for was some anecdotal idea of what was getting them interested, what was selling and all it was so severely delayed. Their connection was so blurry, but now with direct branding, they know exactly in real time what’s relevant, what’s interesting to their customers, and they’re able to move their whole enterprise again because they’re more agile because they don’t own all of this infrastructure. They can now move the brand to be exactly where their customers are looking for, and they read their signals correctly.

Allison Hartsoe: 06:26 That’s fantastic. It’s also when you were giving the example at the beginning about Tide and choosing a brand because you know Tide, I remember doing that. I remember specifically staying away from unknown brands that I don’t necessarily feel now because there is definitely a connectedness. I can pull up the brand’s website; I can see their reviews, I can see what other people think about them. I can see if my friends are buying them and that direct connection is really driving that perfect storm. That’s, how have the bigger brands reacted to this change?

Ed Kleban: 07:01 You know? Yeah. There are some of them that are out there that are really doing a great job, uh, as seeing an understanding the data and using that first-party data to fuel every enterprise function. And Nike’s a great example of it, you know, they, they can continue to sell more and more of a bigger commitment to e-commerce and their online presence and so they’re using this shopper data to help them design their products for each of their individual segments. They get this great feedback that makes them so authentic, um, so that even as a legacy brand, the personalization, and the feedback they get from one year becomes mainstream next and then eventually they also are using their workouts that are a logged by night plus to really get a feel for what’s going on. So they’ve got this great pool of data, and they’re using it wonderfully in order to stay relevant with a, you know, an ever-shifting in very fickle customer base.

Allison Hartsoe: 08:01 Oh. And of course, I’d be remiss not to mention the Zodiac acquisition that Nike made earlier this year, which was a company that was designed to calculate customer lifetime value. So I imagine they’re probably loading that into the mix of data that they have as well.

Ed Kleban: 08:17 I can’t wait to see how that changes things or how that affects their overall communication strategy. Another one that I love is Urban Decay, Urban Decay as a beauty brand has always been very cutting edge and they’re doing a great job of understanding customer sentiment on Social, looking at their browsing behavior both onsite and through their videos and taking all of that activity online and offline to modify their product mix and keep themselves very cutting edge. I love what they’re doing, and again, they have to be not just beauty, but their makeup, like experimental makeup, they’re so cutting edge, and they use all of their signals and in order to deliver a product and a message there that keeps them right there on that edge.

Allison Hartsoe: 09:05 So they’re using online data to keep the mix really sharp. They’re using those customers signals, customers across the board to try to understand what is the right product to deliver to them. Is that right?

Ed Kleban: 09:17 And that is correct.

Allison Hartsoe: 09:18 Well, how does that relate to the new retailers that are coming out that are moving faster? And maybe you can give us an example or two.

Ed Kleban: 09:27 Yeah, and I think, you know, there’s been a lot of talk around these direct to consumer brands. You can’t talk about them without, without touching on Dollar Shave Club, you know, they put a $4,500 into a video, created a whole new marketplace, and then ended up selling for a billion shaves while a billion dollars. Right? The Gillette share at one point was 70% in 2010, 70% market share and that fell to about just about 50% in 2016. That all came from this idea of finding just a decent product. I mean, I don’t think that the Dollar Shave Club is an improved razor. It’s just a decent razor, but they have great delivery, and an incredible story and they found this huge margin. Gillette was selling at such a big margin. The cost. It was such an opportunity to slide right in. It was a marketplace that was right for competition.

Ed Kleban: 10:20 So you know, there are one of the great success stories of direct to consumer. Warby is another great one. I, yeah, the granddaddy of them all, they also found a marketplace or a vertical that was. They were making way too much money. Luxottica owned almost the whole vertical. And you know, glasses shouldn’t cost $600, so they created this great fashionable product, an incredible product that even like the look of Warby sort of made you look digitally savvy. I love the fact that they sort of developed the look and made it fashionable and then they overcame the delivery problem because people said you wouldn’t buy glasses without seeing them on your face. So they sent you five without any glasses in them, and you chose it and sent it back. And then, uh, you know, and then they had online digital see what it looked like on your face sampling also. So they found a great high margin target. They delivered it well, and they had a great story. Those are the consistencies that I’ve seen in the direct to consumer companies that are really succeeding.

Allison Hartsoe: 11:29 Those companies make a lot of sense. I can see how the role of the story is central to what’s driving them. The other things support the distribution and the product, and those things have to be good too. But it seems like they’re attracting their initial audience with that great story. Just like you talked about with that $4,500 video from Dollar Shave Club, making them come out of the gate strong.

Ed Kleban: 11:59 Oh, one of my favorite brands, I was the one that I fall in love with is Lola. They ended up raising about 11.2 million dollars in funding, and you know, they uh, they are a business for women by women as opposed to uh you know, feminine products that were made by and sold by men. You know. So here’s another great example of like a better story, a better product with better delivery. They just nailed it.

Allison Hartsoe: 12:26 Oh, what do you think this means? You know, you’ve got these smaller brands coming up. Is this something that’s sustainable? Is this really a changing of the guard or are the legacy retailers just going to turn around and copy what the new brands are doing or acquire them? What do you think is going to happen here?

Ed Kleban: 12:45 Well, this isn’t a trend. I think this is an actual change. JD Power said about a third of consumers expect this direct brand connectivity and I think you need to have an authentic story. It no longer can be just a sort of made up feel good. I think you need to have some authenticity, and you need to deliver value, whether it’s higher quality or lower cost or even better, both quality and cost and you need to be able to deliver that story digitally across all of your channels. So it doesn’t have to be a feature film beautiful, it just needs to be authentic, and it’s not just a delivery because I’m telling you some of these brands feel like all that’s the difference. So right before we got on, I said what would happen if I Googled the Gillette and subscription and sure enough the top choice was, hey, yeah, we’ve got a subscription, and you can get it for a dollar a blade. It’s like, Oh yes, they’re not bowing to Dollar Shave Club now. I mean like they used to run that market, and now they are just following and hoping that, hey look, we’ve got delivery too, and I think they miss the idea that it’s not the delivery, it’s the story. They understand that the razors cost too much and they get me. Whereas there’s somebody in Gillette who I’m sure are saying, if we just make it an easier subscription model, we could sell more

Allison Hartsoe: 14:13  And I think that’s a lot of what fast retailers bring to the table is we talked about it as a story, we talked about it as customer experience, but it’s really that authentic heart that is what drives people to the brand. They understand that glasses shouldn’t cost $600. Razors shouldn’t be $10, and those are just cost pitches. There are other angles perhaps with Lola where the story is connecting to women who want products developed by women, not what did you call it, a level two medical device at one point.

Ed Kleban: 14:47 That was it. You don’t have to ever disclose what’s in a feminine product because it’s a level two device and Lola said, that’s silly. We’re gonna make it. We’re going to make our stuff out of cotton. We’re going to make it, and we’re going to tell you what’s in it because it matters to the women who used it and to me that is exactly at a passion for the product and it makes the consumer feel smarter. Feel like they’re making a better decision and not sort of aligning with these big brands just because that’s what their mom or what their family had done forever, right? There are new generations and folks that are making new buying decisions, and they’re making decisions based upon these stories and the availability and currentness of the brands.

Allison Hartsoe: 15:36 And are they actually having a financial impact. And I know I can see that in Dollar Shave Club, they’ve obviously had a huge impact, Warby’s had a huge impact. But are you seeing that the fast retailers are actually taking away from the old school brands across the board and other places?

Ed Kleban: 15:55 Yeah. You know, one of the great numbers is Hubble. JNJ came out with their Accu. Bausch and Lomb have their own subscription model, but Hubble is growing at a rate that is so much better than, than the other two. JNJ sees about 8%. Uh, I think Bausch and Lomb were at six, but Hubble was at 20% monthly growth. They are just blowing up, and I think that that’s what you see with these digital brands.

Allison Hartsoe: 16:24 So they’re growing like crazy. And I, I bet there are other examples out there too.

Ed Kleban: 16:29 Well, I’ve got one more. That’s a shoe store sales were down five percent, five percent. That’s sort of what retail is, is seeing. But online, Allbirds and Jack Erwin have gained nearly 15 points of share over the last five years. So it’s not that people aren’t wearing shoes, they’re just not buying them at the shoe stores.

Allison Hartsoe: 16:53 Well you know, that’s a really interesting case where I think the death of retail, you know we’ve been hearing about that for a couple years and it seems that it’s not really the death of retail at all. It’s the rise of the customer who wants to buy in a different way. I don’t know. How would you phrase it?

Ed Kleban: 17:12 That is well said. I liked it though. I like the rise of the customer. You know, I think that the world of data is changing. I think that we are looking at a change in the way that we run our businesses, know that third-party data that people used to count on to go out and prospect and to look for those things that how do I think is starting to close down. You know you look at GDPR, you look at Cambridge Analytica, California privacy acts, a Facebook backlash that’s going on right now. Everything’s signaling that the data you own, the stuff that you get from the infrastructure that you build, the things that your customers share with you, that’s going to become more and more valuable. I’ll tell you, that’s why we are so happy to be partnering with Ambition because we see that the infrastructure, the pipes, and tubes of the communicating with your customer going to be a way that we bring meaning to these signals that these folks are sending and or counting on our friends at Ambition to help make those things meaningful.

Allison Hartsoe: 18:19 Thank you. That’s exactly what we try to do, and you know, I was working on a project just last night in fact, and I was noticing in this old-school company they were talking about different things about the customer, but they kept using language that was all related to the product. As I looked at that, I realized how hard it is for older companies to stop navel gazing, to stop thinking about what they’re pushing out and what they are trying to get people to do and to really be customer-led and the new retailers have a great advantage in that they’re starting with that from the very beginning. They’re constantly listening to the pulse of the customer, and they’re really trying to let the customer lead as opposed to put this next best action carrot in front of them and assume that they’re all gonna tromp along just like, you know, like, like leading a horse to water. Right? So I find these new retailers, so inspiring to work with.

Ed Kleban: 19:22 And we believe that your customers will tell you what you need to know to have your business grow like these great B2C brands. If you just listen to what they have to say,

Allison Hartsoe: 19:33 So Ed, if people want to get in touch with you, what is a great way for them to get in touch?

Ed Kleban: 19:39 Well, we’re a valencemi.com, we’re on LinkedIn, and you can call me on my cell phone,

Allison Hartsoe: 19:50 your cell phone number.

Ed Kleban: 19:52 You could stop by my house if you’d like. If you want to knock on the door? We’d love to have you come by. We always have a little something on the stove.

Allison Hartsoe: 20:02 There is authenticity right there. Everybody else was like, oh well you can find me on Linkedin as like, oh, you can come over for dinner.

Ed Kleban: 20:12 That’s it. You just tell me your dietary restrictions.

Allison Hartsoe: 20:17 Fantastic. Well, let me summarize a little bit of our conversation. So we talked in the beginning about old retail versus new and what particularly had changed and I, I love the way you mentioned this perfect storm of different pieces coming together in order to make the new retailers successful and those pieces are more than just marketing and we often times think, oh, it’s the rise of social media. Everybody can see or hear my story, but it’s more than, it’s also the infrastructure and what you said was you can distribute without owning the trucks. You can buy the infrastructure you need as you need it. You probably make an item on demand too as opposed to having warehouses and the old legacy structure that is incredibly powerful and it is what’s allowing those brands to make that connection between, hey, there’s a need in the market, and I can get it to the market. Whereas before, I don’t know how many years ago, maybe 20 years ago, you really had to go through the big brand distributors there. There was no alternative.

Ed Kleban: 21:21 That is true. And uh, I think that that actually held back a lot of innovation, um, because uh, you know, uh, they were thinking on a national or a global front and sometimes people are just thinking on a customer by customer front.

Allison Hartsoe: 21:37 So true. And then we talked about some of the old retailers who are changing and some that haven’t quite gotten the memo yet. And some of the old retailers that seem to be, and by old, I just mean older, not necessarily, you know, 1900, but these retailers like Nike and Urban Decay that have been out there for a while who have figured out something has changed in the market. We’re going to change too whether that’s communicating the authenticity more, whether that’s using customer signals to deliver a better product. They’re getting the message and really connecting deeply with the customer as opposed to, I think your example was Gillette and how they simply added a dollar a month subscription model to match Dollar Shave Club, but they were missing the heart behind it. It was clearly a need to strategy and that fails because you have to connect with everyone at the beginning and that’s exactly what you said in terms of like what would you do and how would you implement this new retailer strategy if you were an old retailer or even if you’re just a brand new brand coming out the steps to get there are that authentic story like Warby and Dollar and other brands are coming up with and then delivering the value both in cost or quality or both and then delivering digitally across the channels.

Allison Hartsoe: 23:03 That seems to be the 1, 2, three recipes, but behind all that and underpinning all that are the pipes and tubes. He said that the way to get the data to make sense so that you really are listening to your customers. Did I capture all that?

Ed Kleban: 23:16 Yes, without a doubt. In fact, one of the things that you reminded me of is the story about the guys that used to deliver ice to ice boxes. Right? So if you think about them, who had a better relationship with a household, they walk into the house three days a week, four days a week. How are you? How are you? Good. What’s going on? How your kids. I mean, they were in the house. They should have been the people who created the refrigerator, but they weren’t. They missed that whole idea. They just kept delivering ice. They would have come in and said, you know what, Mrs. Jones, we’ve got a brand new idea. We’re going to give you a plugin icebox. You’d be hearing about them. I don’t think you could come up with a single brand of ice. It was in everybody’s house in America. I think if you are not open to the new ways of doing business, you will be doomed to being obsolete.

Allison Hartsoe: 24:10 I think I would even say if you’re not open to how you can be of service to your customers and really thinking through what is it that I give them that they value? It’s not the ice. It’s the ability to keep food cold, and the re-framing of that thinking is what is driving these newer brands to such success because we moved into a time now where customers are more powerful. Customers have more choice; they are the heart of the business. It’s not our ability to sell them a product; it’s our ability to relate to them as people.

Ed Kleban: 24:46 Yeah. And I think that that is the comforting factor in collecting first-party data is trying to make sure that you are using it in order to be of service and grow your business and help your customers in trying to, uh, you know, because there, there is still a concern even about first-party data about how people are using it. And so, uh, I think that there needs to be a, uh, empathy and an understanding and part of that social contract of taking care of your customers.

Allison Hartsoe: 25:15 Excellent point Ed thank you. So as always, links to everything we discuss are at ambitiondata.com/podcast. Ed, thank you for joining us today. It’s been such a pleasure.

Ed Kleban: 25:27 Thank you. I’m looking forward to hearing this on the podcast.

Allison Hartsoe: 25:31 Remember, when you use your data effectively, you can build customer equity. It’s not magic. It’s just a very specific journey that you can follow to get results.

Allison Hartsoe: 25:43 Thank you for joining today’s show. This is your host, Allison Hartsoe and I have two gifts for you. First, I’ve written a guide for the customer-centric CMO, which contains some of the best ideas from this podcast, and you can receive it right now. Simply text, ambitiondata, one word to 31996 and after you get that white paper, you’ll have the option for the second gift, which is to receive The Signal. Once a month I put together a list of three to five things I’ve seen that represent customer equity signal, not noise, and believe me, there’s a lot of noise out there. Things I include could be smart tools I’ve run across, articles I’ve shared, cool statistics or people and companies I think are making amazing progress as they build customer equity. I hope you enjoy the CMO guide and The Signal. See you next week on the Customer Equity Accelerator.