SAVE THE DATE: Sleep Summit Oct 8-11, 2024

Ep. 4: Is Brick and Mortar Retail Walking Dead?

Mike and Jeff map out a future for brick and mortar mattress retailing and Magnuson explains his strategic framework for brick and mortar retailers

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Mike and Jeff map out a future for brick and mortar mattress retailing.

Mike explains his strategic framework for brick and mortar retailers — The 3 C’s — and walks through the path that mattress retailers can take to secure a future for themselves in today’s rapidly changing retail landscape. He also adds a fourth C that is particularly pertinent to independent retailers.

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Full Transcription:

[Jeff Cassidy]

There’s definitely a lag each time.

[Mike Magnuson]

It feels like the zoom equivalent of doing a bad high five. You know, like a high five that you’re like psyched, yeah let’s do it and then you just barely clip each other’s hands. It’s just the least satisfying feeling. That’s what this feels like to kick off our podcast each episode.

Alright, so here we are. We’re going to dive into the question of, you know, it’s kind of like a timeless question now. It seems that the media has debated almost endlessly; is retail walking dead? Or is retail dead? And it kind of just comes up. It’s been coming up for 20 years or probably more since really the dawn of Amazon and e-commerce. And what’s interesting about the question is that A; the answer gets, it does change over time. I mean, at least the nuances of the answer do change and what’s also interesting is that it varies by industry too. A lot, and so we can really speak to the specifics of this industry as well as this exact point in time and what the challenges are ahead of this industry.

But I’m going to cut to the chase because I’ll give you my opinion; which is that retail is not walking dead. That is my categorical, if I had to put it into one word I’d say ‘No’. Not walking dead. How about you?

[Jeff Cassidy]

Not walking dead and not dead yet. It is still very much alive and has a future given-

[Mike Magnuson]

Wait, when you say ‘Not dead yet’. That implies that it’s about to be dead.

[Jeff Cassidy]

No, that’s a joke from Monty Python. Bad joke. I do not think retail is dead. I think-

[Mike Magnuson]

Bringing it way back.

[Jeff Cassidy]

Way back, way back. I do not think it’s dead. I think it has a future but without changes and doing things the way of the past then people who do that will have a tough future.

[Mike Magnuson]

Yes, well said, and I think that’s where we’re going to spend our time in this episode. It’s giving our take on ‘What are those things?’ Let’s start from that point of view; neither of us thinks it’s dead. Certainly doesn’t need to be dead. It’s just a question of ‘it’s got to adapt’ because we’re in a different time period and really, as we talked about in the last episode, the environment has changed. It’s gone through a step function change really recently with this Covid thing that we expect will have lasting impacts going forward.

And so, the rate of adaptation has to match that. It really has to take a step change as well. It’s not enough to just kind of inch forward. In fact, I’d argue that the mattress industry as a whole has been falling increasingly far behind the consumer in terms of where they are as it relates to what has already been a gradual evolutionary change in the retail sort of landscape and the shopping journey as it’s moved more online. But now, that sort of slow laggard approach is going to be even more penalizing.

So, I guess if I think about this and if you haven’t listened to our last episode about Covid and the impact it’s had on the industry, definitely I’d recommend going back and taking a listen to that. But my mind-set about retail is; you’ve got kind of two choices as a retailer. You could either be what I’ll call a ‘retailer’, focus on just retailing. Meaning, basically just being a place where a consumer can go find and buy that product. That’s pretty much, if that’s your only role in the value chain then you’re just retailing, for lack of a better term, for that.

But the alternate path which I would suspect is the path that most retailers would at least say, or play lip service to saying, that they would want to take if not really believe is what I would call ‘brand building’ and that’s really kind of making yourself essential to the consumer in some other way. And really, I view it as giving yourself a long-term reason to exist. Right?

I mean, if we’re going to say ‘Is retail walking dead?’ well what would make it definitively not walking dead; if it has a long-term reason to exist. Well then, for sure, it’s not walking dead. So, that is how I look at it and if you’re not in that business of brand building then you’re not giving yourself a long-term reason to exist. And by the way, the important add-on to that is that as you build your brand, you better be making the case for exactly why it is that you have a long-term reason to exist. That should be what your brand is about.

[Jeff Cassidy]

Right, your brand has to involve something that makes me want to go to the store. To buy whatever the product is and obviously in this case mattresses but if your brand is just about comedy, that’s great if you’re a comedian, but I’m not necessarily going to go buy my mattress from a comedy store. So it has-

[Mike Magnuson]

It’s funny you chose comedy like, as though that’s the path most mattress retailers take. You know, everyone thinks of mattress retail as just hilarious.

[Jeff Cassidy]

It was an example that nobody’s doing, so no one would feel singled out. You get my point right?

[Mike Magnuson]

I get your point but I’ll actually single some people out. Well, not by name but by practice. The people who are making their marketing efforts about price and promotion are not providing themselves a long-term reason to exist, or not demonstrating to the consumer, or making a case to the consumer for why there is a long-term reason for them to exist because they’re just doing what I’m calling retailing. They’re just saying ‘Hey, if you’re looking for this product you can get it at this price at our store’. That’s it, that’s the only message but guess what?

Any other store can make that case, any other store can carry that product, can lower that price. Even the manufacturers themselves increasingly as we’re moving forward into the future are just; the reality of where we’re headed that almost all manufacturers in almost every industry will ultimately be able to sell directly to the consumer. Well, they certainly will be able to if they want to and most, if they’re at least the ones who are building a brand around their products, are going to feel the need to do that.

So the consumer is going to have the option to buy a branded product directly from that manufacturer, and again what’s the reason for you to exist in that world?

[Jeff Cassidy]

I would say even worse with focusing promotion solely on sales or price. What that’s doing is conditioning me as the prospect, as a potential customer, to think of that store as a low price place. That all I care about for that store is it’s the cheapest. And I’m not associating that brand with some sort of value, some sort of helping me, some sort of reason other than price. So I associate that brand with ‘cheap’ which is not a good place to be.

[Mike Magnuson]

Right. Yeah, that’s arguably not a brand positioning per se, as a retailer at least. So there’s these two paths; retailing and brand building. We’re not going to focus on the retailing paths, we kind of just already talked about it and talked about that. We do think that path is fraught with peril looking forward from where we are now. I mean, it’s commoditized and so at best you’re in a battle of trying to fight scale. The scale of Amazon and the scale of Walmart with whatever your scale is because you’re kind of in a price war and that type of thing.

So good luck with that but that’s going to be a tough road to hoe. I think brand building on the other hand provides, I think, great long-term reasons to exist but you’ve got to hone in on what those are and they’ve got to resonate with the consumer and this is where I’ve put out this framework. I came up with it, I don’t know what was it like in 2018 or something like that when we first talked about this, but I call it the three C’s. And essentially, these are what I consider to be three good choices for things you can build a long-term strategic positioning around as a retailer today.

The three C’s are; Curation. And what that essentially means is that you’re telling the consumer ‘If you come to our store you’re going to make a better choice in buying this product than you would have if you didn’t come to our store’ and there’s a lot of ways you can attack curation. You can do it through really well trained expert sales people, that’s a great way to do it. You can do it through technology, you can do it through even just your merchandising. We’re making the case to the consumer that we’ve done the heavy lifting of figuring out which products are best, assembling a wide enough array of those products to meet the needs of different types of sleepers, and so forth.

So there’s a number of ways you can attack curation but that, as a pillar of a long-term positioning, I think has value and is not going to go away. That’s something that is going to be valuable to the consumer even in a world where they can buy any product they want from the manufacturer directly.

And the second one is; Customer service. So that would be ‘If you buy from our store, we’re going to have your back for the duration of the time that you own this product’ and that’s really important to consumers because this is a big investment, it’s a product they expect to own a long time, and also it’s bulky. So it’s not the kind of thing that if they have a problem, they can just send it back to the manufacturer and have them look at it. It’s comforting to a consumer to feel that they’ve got someone near their house, in their local area, who really really has their back if anything goes wrong over this long time period that they’re going to own this product.

And so, there’s value to that. Again, I can buy it directly from the manufacturer. They can ship it across the country to me but that’s not going to give me that kind of comfort. Right? That’s not going to provide that person in my market who’s got my back for 10 years. Customer service is number two.

Number three is Convenience; and this is just kind of ‘If you buy through our store we’re going to be able to provide things to you’ or ‘if you shop through our store we’re going to be able to provide things to you that you wouldn’t otherwise be able to get’. You know, it could be same day delivery, it could be just the ability to try the mattress before you buy it. Even that is a form of convenience. It could be things related to returns, or setup, or whatever, taking your old mattress away. Any number of various things that a retailer, by virtue of the fact that they’ve got boots on the ground right near that consumer, they can offer that obviously someone selling online or from far away can just not offer.

And so, those are the three C’s and then since I came up with that framework I added a fourth C because I really do think that there is a segment of retailers for whom there is a very valid fourth C and that is Community. And essentially the pitch there is that ‘If you buy through our store you’re going to be supporting your community, making your community a better place by virtue of the degree to which we are part of the fabric of your community’ It’s kind of the extension of that. So, you have to basically make yourself in the case of that fourth C.

Show that you are an indispensable part of the fabric of that community. You know, that you’re the guys who are sponsoring the kid’s baseball teams, you’re the guys who are showing up at disaster relief type of things. You know, you’re the guys who are hosting events or whatever at your stores for different groups of people in the community. You’re an integral part of the fabric of that community and if people are buying from your store they are making their community a better place by extension and that’s powerful, If you can make that case to people. It’s not enough to just say ‘Hey, we’re a local business you know. We live here.’ I don’t think that’s quite enough.

I think it’s got to resonate more than that but if you can make the case; the community is better with you than it is without you then I think it’s powerful.

[Jeff Cassidy]

Yeah, I agree just saying local business. I think these days especially with Covid being a local business, that helps way more than it has in the past because people want to support small, especially family owned businesses during a pandemic. But I think the community piece, a big part of that in my opinion, is clearly demonstrating your values. So demonstrating values that consumers appreciate and share. And if they see a retailer as a person, again acting in ways and supporting causes that demonstrate values that they agree with and they look up to, that’s where the community piece really helps.

[Mike Magnuson]

Yeah

[Jeff Cassidy]

I also think consumers are very adept at sniffing out when it’s fake and if it’s fake, in my opinion, it can be counterproductive. If you’re trying to fake that community thing so that part; it’s got to be from the heart.

[Mike Magnuson]

Yeah. Well, authenticity is one of those things that, it’s a buzzword but it’s a real thing. I think authenticity, just in business today, is so much more important than we ever perceived it to be in the past and I’m not actually sure what is behind that. Maybe it’s just sort of our BS detectors have become so much more refined and we’ve become so much more cynical as consumers over time but for whatever reason authenticity is a real factor, I believe.

[Jeff Cassidy]

I agree.

[Mike Magnuson]

So, and to be clear about how to use this framework, you know, it’s not as though you have to focus on all four of those C’s or all three of those C’s. I just believe you have to focus on one or more. You can focus on more than one if you feel like you can build a strong value proposition around it and an evidence backed case for why this is a true differentiator for you but you’ve got to pick at least one of those and make it your thing and then really make the case for why that is.

And by the way, making the case; I mean we’ll talk about this a little bit more in a few minutes but that’s going to be in your marketing and it’s also got to be in your customer reviews. It’s really important that people see third-party validation that supports whatever it is you say about yourself. So, if you say that we make a better choice because we come here, you should have reviews where people say ‘I didn’t know what I was going to get and then I went there and I just felt like I’m so much more confident about making the right choice. And sure enough it was a great mattress, I love it, and thanks so much to this store for that.’

You know, that’s important. So, making sure that you’re getting those reviews, you’re asking for those reviews, and that those comments from consumers match the music that you’re playing. I actually think those reviews of your consumers are actually a pretty good place to start if you’re not sure where you should focus amongst these three or four C’s. One good thing to do, or a good exercise is to take a look at the reviews you’ve already gotten. See what kind of themes you see, and see which of these three or four buckets those tend to fall into.

You might see that; Oh a lot of people, like a lot of our five star reviews, they’re talking about our customer service. That seems to be the thing that they’re really impressed about. Well, that’s a great indicator that maybe that is the fundamental tenet of your long-term differentiation, it’s that we’re about customer service. We’re about having your back for the duration and go from there, you know, go run with that.

So I think that the next thing that we would say in terms of retailers having to adapt is; if I look at the landscape from the last five years, the online guys have just been so exceptionally effective at building their brands. I mean it just stands out in the data so clearly. When we look at the data on the most searched for brands, you know as that’s a common thing we look at, and we see how quickly brands were able to come out of nowhere. Casper just came out of nowhere and became more searched for than these brands that have been around 100 years. Purple then did it even faster than Casper and then Nectar did it faster than either of them.

And they’ve just, one after the other, been able to build these brands so quickly to the point where, and by the way I do think that searches for brands is a really good metric to consider when you’re measuring the pull effect of a brand. You know, to what degree is it really going to pull people into my stores because it’s reflective of so many things. It’s reflective of word of mouth, it’s reflective of advertising, where people are hearing about it through the advertising. It’s even reflective of store distribution and how compelling this product is when someone is seeing it on a sales floor. So it wraps a lot together and I think it’s a pretty good barometer of brand effectiveness and marketing effectiveness.

And what’s so amazing is that these guys have done all that with so little money. I mean it’s easy to look at Casper and go ‘Oh, they raised all this money. Hundreds of millions of dollars in venture capital’ but even with that, it’s still a fraction of what a lot of other brands- I mean well, not a lot of other brands, but it’s still probably in line with what big brands have spent certainly over the previous five years to Casper coming along. Like big brands spent, you know, tens of millions if not more than that in those years and Casper with tens of millions and ultimately they grew to hunt in the hundreds of millions in terms of their marketing. But for the first few years it was just in the tens of millions and they were just able to do so much more with that from a dead start, from starting from scratch.

So why is that? That’s the kind of question we have to ask ourselves and the clear answer is, to me, that and by the way and this proves out too in the trend lines we’ve seen with subsequent brands coming in after Casper like Nectar who’ve been able to do it even faster. The trend to me is very clear. Which is; they have been able to more effectively utilize their advertising dollars. That’s the bottom line, they’ve been able to just, for each dollar they get more impact out of it and one of the ways that they’ve been able to do that is not using it on mass media.

You know, we’ve talked about this so many times, you and I Jeff. That mattresses are one of those products that people don’t tend to think a lot about in between purchase cycles. You know, you think about it maybe when your mattress is getting old and you’re in pain but that’s when you’re starting to come into the market for it again. But in between, that in-between time period, you don’t think about mattresses.

Some products, maybe cars, you think about. Like you have a car and you like it but you’re still looking at other people’s cars, you’re interested in cars in general, maybe you’ve got some favourite brands and you’re staying on top of which new models they’re coming out with, but no one does that with mattresses. No one is like ‘Oh, I’m just a mattress enthusiast. I’m reading my sleep and slumber magazine, I’m a long time avid subscriber to that.’ No one does that.

So they put this out of mind until they come into the market. And what that means is that when you hit them with an advertisement for a mattress and they’re not in that brief period of time where they’re in market, it might as well be speaking another language to them because it’s going to have no long-term impact; is my belief. Or at least the amount of long-term impact is diminutive relative to the cost of that. And the problem with advertising, especially the way the mattress industry has done it for so long, is that it has relied on traditional media channels which have no way to target people who are in the market.

So, if the average person keeps their mattress for 10 years and the average person is in-market for a mattress for one month when they decide to buy a mattress. Which; we know some people stay in-market for six months. Some people, they stay in-market for one day, but let’s just call one month kind of an average. Well, that would mean that essentially one month out of ten years you’re in the market for a mattress. So that would mean that on average across the population; one percent of people are in-market for a mattress at any given time.

And that means that because these mass media whether it’s TV, radio, newspapers, or any of these untargeted media. Any cross-section of people that you’re reaching through that medium is, 99 out of 100 of them are not in that one percent but you’re still paying full freight to reach them. You’re not getting any discount, you’re paying as though they are a totally valid prospect, and you’re doing it all. You’re essentially paying for a hundred just to reach that one and the money you spend on those 99 is essentially flushed down the toilet and the online guys understood that.

They understood that or at least most of them have understood that and they’ve acted accordingly from the beginning. They’ve spent their money much more effectively, they’ve focused on in-market shoppers. Now the better the online brands have done that, the better they have done. So Nectar has done that better than anyone amongst the big brands, right? They have not spent very much at all on traditional media as a portion of their marketing mix and they’ve grown the fastest, right?

They’ve had the fastest trajectory, they came in the latest of the big, sort of top five brands today, and they’ve had the highest trajectory. So they’ve really shown and by the way I think that bears out too in the data. If you talk to people who are kind of just, man on the street, ‘Have you heard of Nectar mattress?’ probably a lot fewer have heard of Nectar than have heard of Casper but if you were to survey people who’ve been in-market for a mattress recently, I guarantee you that Nectar has reached them. That person will think of Nectar as a really big brand because they’ve probably seen Nectar ads a lot of times.

So, Nectar has done that really well but all the brands, all the online brands have done that better than the traditional side of this industry. And so, how you spend your ad dollars, I think has really dictated just how successful you’ve been and more than that how the traditional industry had been spending its ad dollars is part of what really opened the door for the online guys to come in and take as much share as they did. They left themselves very vulnerable to that attack. Now there were other things that, you know, the black eye that the industry had certainly played a part in that too. They left themselves vulnerable in that respect also but just from a straight-up business blocking and tackling standpoint there was a huge vulnerability in the fact that they were spending their ad dollars so ineffectively.

And so the online guys exploited that from day one and by the way we’ve seen, some people will probably be listening to this thinking ‘You know I had seen Casper ads on TV, I’ve seen some of these guys do TV. That’s Purple, even Nectar has done some.’ That’s true and there’s a degree to which they’ve sprinkled a little bit of that in and some have sprinkled it in more than others. It doesn’t mean that’s their most effective ad spend by the way. We saw the video advertising, or TV advertising bureau put out a study to promote video and TV advertising to D2C brands a few years ago.

They used a case study from Leesa where they bragged about how Leesa spent, what was it? 50 million? Oh yeah, they spent 50 million more in TV ads between one year and the next and their sales went up 70 million and they use that as a validation of how great TV advertising is. Well, anyone in this industry knows that’s a total fail. Right? If you increase your sales by 70 million, you increased your contribution by roughly half of that let’s say because your cost of goods is a big part of that and you spent 50 million in hard dollars to get that 35 million in extra contribution. That’s a loss actually and that to me is a great indicator.

Now, a little bit of TV advertising is helpful, I think, to an online brand to demonstrate to a consumer that you’re real. Or a real brand, it kind of says, you know, something about your stature but it’s not going to be the part of your ad dollars that actually is kind of measurably cost effective. So that’s a big part of it, it’s about the marketing mix and it’s not-

Another key point that gets missed in the industry is that people think ‘Oh, I got to just have my money in digital.’ Well, that’s not enough either because just a random Facebook ad is no more targeted than a random TV ad. I mean; Yes, you want to be on digital but you’re not getting the benefit of being on digital unless you’re using the one advantage that digital has that makes it the place to focus. Which is that you can target in-market shoppers. That’s the only thing that makes digital better than these other mediums, It’s not just the fact that it’s digital.

So, you’ve got to be taking advantage of any ways, with digital, to reach in-market shoppers at the moment in time when they’re thinking about this exact purchase. That’s where you got to be, that’s when you got to be there and if you’re not spending the majority of your ad dollars there, then to me that’s a loss. So, I look at it and I go ‘Okay, so you got to take stock of where we are here in this evolving landscape of how consumers are shopping for this product and you’ve got to adapt your marketing priorities accordingly.’

And so, I think of it as having like a pyramid of marketing priorities. Maybe pyramid is a bad euphemism because, you know, the top of the pyramid is the most important but it’s also the smallest so I’m not sure but we’ll go with that.

If you think of it as a pyramid of priorities for marketing; I start at the top and I say my first priority is online reputation because I could spend all the money I want on driving awareness through TV or digital or whatever but if I’m effective in getting people’s attention, really the best case scenario is they go online and they search for me. And if, when they do that I’ve got shitty reviews that’s… I lost them and I might as well have not even done that advertising in the first place to get them because it just fell on the floor the way it would have if I hadn’t advertised at all.

[Jeff Cassidy]

Yeah or even worse. If maybe, it was somebody who hadn’t really thought it was time to buy a mattress and they see that. And you trigger them to think ‘Oh yeah, maybe I will buy a mattress’. You brought them in line and all you did was spend money to bring a customer to one of your competitors. So, it could be even worse.

[Mike Magnuson]

That’s actually a really good point. Yeah, you actually did and I’ve actually heard smart retailers talk about that. How they’re like ‘Yeah, I just want to be online looking good. I’ll let like the big retailers kind of drive demand for labour day or whatever, I’m not going to touch that TV stuff. They come online, I’m there. Boom, like…

[Jeff Cassidy]

A little bit guerilla but also-

[Mike Magnuson]

Yeah, it’s kind of guerrilla marketing.

[Jeff Cassidy]

Yeah. With the online guys; they had the benefit of not having been burdened by success with previous types of advertising. So, I think mattress brands… Before the online guys came to be; successful mattress brands, successful retailers, had done traditional advertising and they had been very successful. So when that’s the case, it becomes harder just psychologically to make a change because you have had all this success doing whatever it was, TV ad let’s say. You’ve had all that success so it’s harder to shift to something new.

Versus the guerilla online guys coming as, how do I attack this market in the most efficient way. They weren’t burdened by any of that. They could just start from a white board and say ‘How do we do this with the least-

[Mike Magnuson]

Well, not only that. They couldn’t afford to do TV if they wanted to.

[Jeff Cassidy]

Yeah, good point.

[Mike Magnuson]

So, they didn’t even have the luxury of making that mistake. They were like ‘Well, we got to be efficient. We’re a startup so where are we going to start? We’re going to start with the stuff that’s most cost effective.’ and that built good habits for them from day one. But you’re totally right that the traditional side of the industry… You know I empathize with this that these habits, these old habits, they die hard and especially when they’ve been successful, like in the arc of history.

Especially, a lot of people in this industry, they’ve been in this industry a long time and so over their long tenure in this industry, they’ve seen the overall arc has been one of success. And it has been built on the back of this particular set of practices that includes use of traditional media and things like that. But again, that does not mean that that’s a good tactic to use going forward and that’s a hard thing to disabuse oneself of, I believe.

And so, I empathize with that. I do.

[Jeff Cassidy]

Yeah, same here to be clear. I was empathizing as well.

[Mike Magnuson]

So yeah, there’s no casting stones as to ‘how one got to where one is now’ but I think that there’s a clear path forward. A very clear path forward and it’s going to involve this technique. Which, for many people, will be a different one than what got them here and that’s just the reality.

And so, going back to that pyramid of priorities, I start with online reputation which isn’t even really about targeted advertising or in-market shoppers. It’s really about review generation and where you got to have reviews. Well, you got to have reviews anywhere your prospects are potentially going during their mattress shopping journey. So for sure Google because everyone starts on Google. I would argue, you know, places like Goodbed are right up there in that priority.

Maybe Facebook, I know everyone thinks of Facebook second. I’d say like it’s maybe second because I don’t think that’s exactly, you know, where… I mean it’s a distant second to Google, if it is second, put it that way. Because it’s not an integral part of everybody’s mattress shopping journey, put it that way. Some people do though look at it and it does help to have reviews on Facebook to the extent you’re advertising on Facebook. So it does, to the extent you want to do targeted advertising on Facebook to people who are actively in-market shopping. It’s nice to have that review validation, right there as part of your ad.

So in that respect, Facebook, the importance of it kind of goes up but it’s less about the place that people go to check you out, to check your reputation, or for that matter the place where people are researching their mattress purchase. And it’s more about; maybe a place where people discover you because of the fact that you were doing something right in terms of targeting advertising to them while they’re in-market.

So Facebook, Google, Goodbed. Yelp is another great place to have reviews although that’s a harder place because they’re very strict about soliciting reviews on their platform. And then, you know, is there anything beyond that even? What am I forgetting?

[Jeff Cassidy]

I personally wouldn’t spend any effort, time, or money on anything else.

[Mike Magnuson]

Oh, we did forget your own website. You’re having reviews on your own website. That’s a good one.

[Jeff Cassidy]

Yeah, you and I forget that one because it’s just like a no-brainer almost. You know?

[Mike Magnuson]

Yeah but for sure you do want to have reviews there as well.

[Jeff Cassidy]

To your point, I also would put Facebook third and Goodbed second. And yes, I’m biased but I don’t go to Facebook to research any purchase, I always go to Google. And if I were buying a mattress and there was a website that was about mattresses and was a customer review platform about mattress brands and companies, I would absolutely look there. So yeah, I think I agree. Google number one, Goodbed second, Facebook third, and like you said Yelp but it’s harder to-

[Mike Magnuson]

Yelp is right in there but yeah, it’s almost like… Because of the fact that you can’t really be proactive with yelp, it’s harder to know how to prioritize that but the bottom line is; at the top of your priority pyramid is your online reputation and that means reviews in these places where consumers, or prospects of yours, are going during their shopping journey and where you need to look good as a result of the fact that they’re going to these places.

And so, you’re basically… When I call this a priority pyramid, the way I think of it is, you should be essentially spending every last dollar you have on marketing to ensure that you have a great online reputation because again if you don’t succeed in that then anything else you do lower in your priority pyramid is a waste. Because everyone’s going to come through this online reviews check and if you don’t look good coming out of that you’ve lost them anyways. So, put every last dollar into that until you’ve got a great online reputation anywhere and everywhere that your prospects are going.

Then, hopefully you’ve got some money left over after you’re done with that and by the way you’re never really done so to speak, it’s more of a ‘after you’ve sort of reached a steady state on that.’ You’re always maintaining and driving more reviews to that but hopefully you’ve got more money in your budget beyond what you need to maintain a good online reputation.

And if you do, that next priority in the pyramid is focusing on in-market shoppers. So finding those people who already have declared, through some action they’ve taken, that they are looking to buy a mattress right now. And they’re in your area and ideally they’re even looking for products that you carry. Things like that and ideally they’re thinking about it right at this exact moment, you’re not catching them at another moment, or they’re thinking about something else. You know, you’re getting them at the moment they’ve carved out to think about mattresses.

So, reaching those people and as targeted away as you possibly can, is your number two priority in the pyramid. And again, I would say personally if it’s me, I spend every last dollar of marketing I have on that tier of the pyramid before I go to the next tier. Like until I’ve exhausted the opportunities to reach in-market shoppers, I wouldn’t spend a dime on anything below that in my priority pyramid because by definition anything below that in my priority pyramid gives me less bang for the dollar. So why would I put a dollar into that lower priority tier when I still have unsaturated opportunity in that bigger ROI tier? It just doesn’t make sense to me.

[Jeff Cassidy]

By the way, I’m thinking about the pyramid as an upside down pyramid. So, it’s a ‘V’ and there’s horizontal lines at each level. So the first, the bottom level is; what you’re calling the top of the pyramid I’m calling the bottom of the pyramid. And advertising is like money that you’re pouring into that upside down ‘V’. So you’re pouring it into that funnel and I’m only hitting level two when level one is full because I’m pouring it into this martini glass.

It’s like a martini glass; I pour and when I hit level one then level two starts filling up. When I fill level two, level three starts filling up.

[Mike Magnuson]

Yeah, that’s a good way to think about it.

[Jeff Cassidy]

That’s a visual that I have in my head.

[Mike Magnuson]

Yeah, I like that. That’s a nice way to think about it and I was going to clarify too that in this second priority in the funnel or pyramid, this is where you actually can highlight sales that you’re having. I think discounts and stuff like that, because I actually think that to an in-market shopper it’s super valuable to know ‘Oh, you’re having a big sale right now.’ Like that’s a motivator for me to check you out or at least to pay attention to you and then look into you further.

I’m in that transactional mind-set and so your upcoming sale is… That’s super relevant to a prospective transaction and so, if you’re doing this targeted advertising to in-market shoppers online then I totally think that promotion type of stuff is a valid component of that marketing from a content standpoint.

Now, the third priority. So again, like in your analogy, only when the previous two have been filled up do you even have any dollars for this bucket. This is kind of like that brand advertising. That untargeted TV, newspaper, radio, whatever. Any kind of untargeted medium or for that matter general Facebook ads. For sure, I put look-alike ads; I know Facebook’s… don’t fall sucker to this.

Like Facebook will try to get you to buy look-alike ads. What does a mattress shopper look like? They just look like other people in their neighbourhood, that doesn’t mean those people are shopping for a mattress, right? Like it’s worthless. Look-alikes are a decoy to try to get you to spend more money on Facebook, they don’t work for this category. They’re great for running shoes, or you know cookware, or stuff that’s more lifestyle based but not for sporadically purchased products like this. It just doesn’t work.

So, anything that’s kind of in that untargeted, not targeted directly at in-market shoppers goes in that bottom priority bucket. Now, certainly there’s a good chance that if you’re being really effective with your online reputation and your targeting of in-market shoppers that you have a few bucks left over and you can totally spend it in this third bucket. I think it’s totally valid to do that but recognize what we talked about earlier, where we talked about the effectiveness of those dollars. And how you are essentially paying to reach people, 99 of whom are not in-market right now.

So, you need to make sure that with that message you’re imparting on them, you’re giving them something that they might actually have some chance of retaining. That might actually stick with them for that next time that they are in-market and hint, if your message is about your upcoming labour day sale, that’s not going to do it. Nobody’s going to be like, five years from now when they’re in market for a mattress, well I remember that store where they were having a big labour day sale maybe I’ll start by checking them out. 0.0 percent chance of that.

So to me, I don’t think it ever makes sense, and I know this is pretty controversial but this is why we’re having a podcast right? So I could just say what I really think.

[Jeff Cassidy]

Because nobody’s listening.

[Mike Magnuson]

Because no one’s listening anyways except your mom and my mom so it doesn’t really matter. Your dog already has a more successful podcast than us and so it’s just whatever…

It doesn’t matter what I say. I’m going to tell you what I think and what I think is; no TV ad for mattresses should ever mention a sale. Well, you can- I’ll amend that a little bit. You can mention it, like if you have a 30 second spot, you can mention the sale with like five seconds of that towards the end, right? But the vast majority of that spot should be focused on something that is timeless. A timeless message that has nothing to do with a transactional type of thing like a promotion.

Something that people can retain five years from now. If they’ve heard it enough times, it will just be stuck in their head, not because it’s a jingle that they can’t forget but because it’s a message that they can’t forget about why you are a better place to go when shopping for a mattress. So, what does that mean? It means it should be one of those three to four C’s that we talked about earlier.

You should be focused on that in your branding message.

[Jeff Cassidy]

What about the question that somebody might say ‘Well, I think I kind of agree with you but my competitors are advertising their labour day sale so don’t I have to do the same in order to not lose out?’ How would you respond to that?

[Mike Magnuson]

I’d say that’s great that your competitors are doing that. To the point we made earlier, that’s going to drive more interest and awareness in the idea of purchasing a mattress for that one percent. You know, for that group of people or maybe even it will pull a little bit of people into that one percent potentially but what are they going to do when that happens? Well, they’re going to go online and hopefully you’ve already kicked butt in bucket number two and they’re going to find you. And also in bucket number one and you’re going to look great.

[Jeff Cassidy]

The way I would respond to that is; if your competitors are doing that you, should be quietly psyched. You should just say ‘Oh man, I wish I was advertising. I wish I had my labour day sale on there.’ But inside, you’re cheering. You’re like ‘Oh great, I’m going to be way more efficient than my competitor.’

[Mike Magnuson]

Exactly, because you know that also over time, the value that you’re getting from your ad campaign when that runs. If you’re running an ad campaign that talks about let’s say how ‘If you buy a mattress from us we’ve got your back for 10 years blah blah blah.’ You hit people with that message over and over and over and over and over again… And by the way, it checks out in your reviews and people can verify that you speak the truth.

And if you hit them with that message for four or five years, well then when they go into market they don’t even have to necessarily see your ad because they’ve already got that emblazoned into their consciousness. That ‘Hey, I kind of want somebody who’s going to have my back and these guys they really focus on this, I’ll go check them out.’ And they’ll go check online, and again that’s where your reviews have to verify that it’s real, but when they do. Wow, boom you’ve just accrued the benefit of that five years of advertising but if your five years of advertising has just been about one sale after the other. Well, you got nothing because unless you happen to hit that guy with another ad when he comes in market for that sale, well then you didn’t get any value from those previous ads at all.

So, you might as well not even have done them. So again, it just speaks to the point that unless you’re giving people a message that they can retain, that’s relevant enough to them to actually potentially retain, you’re wasting 99 out of a 100 dollars with that ad. So don’t do that. If you’re going to spend money in that bucket, if you’ve got money to spend in that bucket, use it to impart a message about what is your long-term reason to exist. Which of those three C’s, could be one or more, are you really differentiated on?

And so, that is how to do brand marketing going forward in this category at least.

[Jeff Cassidy]

Alright. So summarizing; you got the upside down martini glass. You’re pouring advertising money in, the first thing it fills up is online reputation. Second thing that fills up is in-market shoppers.

[Mike Magnuson]

Which you can only reach online but that doesn’t mean that online advertising is sufficient. It’s like, you’ve got to really be doing online advertising specifically focused at those people who are in-market.

[Jeff Cassidy]

And the third one is what?

[Mike Magnuson]

Third one is anything that’s not targeted. Whether it’s general run-of-site type of online ads, or look-alike ads on Facebook, or if it’s the offline stuff. Really anything offline; TVs, magazines, radios, newspapers, anything that you’re in that’s not targeted falls into that category.

[Jeff Cassidy]

Formula 1 race car sponsorship?

[Mike Magnuson]

Yep, yep that falls into it too.

So, you know, I think that if we step back a little bit too. I think it’s worth pointing out that there are other things too that you can be spending money on in the market. We talked about advertising, the sort of paid advertising. Well, online reputation is not paid advertising but the other two buckets were specifically forms of paid advertising. But there’s also other things, I think, that are all really important here in a world where the journey is increasingly starting online and the decision is increasingly happening online.

And that includes things like SEO and you know getting discovered through that, through the content on your website. So I don’t want to neglect, to at least mention, that should also be part of what you’re doing and obviously, SEO falls in my mind into that second bucket. Because in a way, anyone who’s-

[Jeff Cassidy]

In a way, it is advertising.

[Mike Magnuson]

Well, in a way it is advertising and for sure the people who you’re going to capture with that investment in SEO are those in-market shoppers, right? You’re never going to get the random… SEO is not going to get or at least it shouldn’t be designed to get just random people who aren’t in-market. That’s not going to do you a lot of good, you’re wasting your SEO dollars if you are getting those people.

It should be getting the people who are in-market. You’re just showing up highly in search for whatever they’re searching for when they’re in-market shopping for this product. So, in that second bucket, I would include things like SEO. And then if you’re doing those things, I think that you can be competitive. You can be competitive long term as a retailer, as a local retailer, you can be competitive but you’ve got to adapt your practices and you’ve got to learn from what we’ve seen working and not working in this industry.

[Jeff Cassidy]

Great, there’s one other thing that I would add, it goes without saying but I’m going to say it anyway. Which is; none of that matters… In my opinion, none of that matters if the people who you have working in your store are not good people. And I mean good people, at the end of the day no matter what business you’re in, it’s people deciding to do people with another human being. And they’re more likely to do that if they trust, and respect, and like the other person.

So if you have bad people, people who aren’t nice, people who are high pressure, then none of what we just talked about even matters.

[Mike Magnuson]

Yeah, it does kind of go without saying but at the same time I actually think it ties into a broader point that I neglected to make when I talked about the three C’s. Which is that, once you determine which one of those three C’s, which one or ones, you’re going to focus on. You not only need to make sure that your marketing is lined up behind that, like we spent a lot of time talking about, but you’ve got to make sure that every facet of your operations is lined up behind that.

And your point about people probably applies to almost any of those three C’s or the fourth C too. But more specifically, you got to make sure that for example; if you’re choosing the Curation one and you’re going to be about ‘Hey, you’re going to make a better choice because we’ve got these highly trained experts to help you make a choice.’ Well, you better have great people on your floor who really are exceptionally well trained, and knowledgeable, and have great skills to work with consumers and help them through that process.

So yeah, like each of those three C’s. You’ve got to line up all facets of your operation behind that to support your differentiation and your reason to exist in that way and so people play a big part in that.

We should talk just briefly, we’ve gone way over. This is now our second episode where we’ve gone way over the snack size that we promised.

[Jeff Cassidy]

We are terrible.

[Mike Magnuson]

Yeah, we’re almost as bad as those jokers Dos Marcos who just ramble on and on. I feel like, I hope people don’t lump us together with those guys. I mean this is getting to that embarrassing level of rambling though.

So I think I was going to just share a little bit more about my journey with podcasting which was in the pioneer frontier days of podcasting. And where we left it off was that I had this proactive kind of investment thesis when I was working in finance that there was an opportunity for a longer form, spoken word content in this world where we were all going to be carrying around devices that could store content, and play content, and actually increasingly would be able to download that content, or stream it very easily.

And so, this was 2003-4 and then all of a sudden in around that 2004-5 time frame, this term podcasting was born. And I realized, this was way before the average person became aware of that term, but there’s a guy named Dave Weiner, who I think is credited with creating the term. He’s kind of a coder/programmer guy and in the early days… Gosh, if anyone was paying attention to the podcasting space back then you’ll remember the names Dawn and Drew. It was a husband and wife in Wisconsin who had a podcast, one of the first podcasts that had some popularity and I don’t even know how?

I’m sure it’s numbers paled in comparison to anything that we think of as a popular podcast today but, you know, maybe it had tens of thousands of listeners or something at the time. But nonetheless, it was just exciting to hear the format and the medium coming together. So I was hearing those guys, the term podcasting was being coined, and I was like ‘This is happening, like this is the thing that I’ve been waiting for and now it has a name.’

And at the time I met Chris Sacca, I threw all my networking in this space to try to find these opportunities. He’s now a name that people know because he was on Shark Tank and he became kind of well known as a venture capitalist but at the time he was just working at Google and we struck up a conversation at a conference we attended together and kind of bonded there. He then introduced me to his friend, who was starting a podcasting company called Odio. His friend’s name was Evan Williams.

So, he connected me with Evan Williams to talk about his podcasting company Odio which was creating, kind of essentially a podcasting app that you could have on an iPod, that would allow you to kind of manage your podcasts. It would also sync up when you synced up your iPod, it would sync up new episodes of your podcast and stuff like that. Basically, it was a predecessor because there wasn’t an apple podcast app at the time. This was that but the weakness in the business model was that we all kind of anticipated that Apple would eventually build that into their platform. Which they ultimately did.

[Jeff Cassidy]

Maybe another weakness of that model was that Odio in Spanish means ‘I hate’. So maybe, it just turned off some people.

[Mike Magnuson]

It could be. I didn’t even know that, it wasn’t part of my due diligence. I didn’t get that far with that concept. It wasn’t intriguing to me as a ‘play’ in this category but as it turned out it wasn’t that intriguing to Evan Williams either because he ultimately morphed Odio into what we now know as Twitter. And so, he was the founder of twitter and literally the company that started as Odio became Twitter.

I don’t even think they created a new company, I think they just changed the name because it was a bunch of people messing around coding for Odio that ultimately created this idea of a 140 character messaging app and they were literally creating code for Odio when that happened.

So anyways, that’s kind of the early days of podcasting and then the other guy who was a prominent name in those early days was a name that I knew. Although not well, because my parents didn’t have cable but I knew it from my youth. His name was Adam Curry and he was well known amongst people in our generation as an MTV DJ and he’d kind of been reborn in 2004 as a podcaster. And he had actually, probably, the most popular podcast of that time. Most listened to; it was called the Daily Source Code and so he was in this space as well.

And that those are just some of the names circulating around. I’ll continue the story in the next episode but that was the mix that I was in, in that 2003-4 timeframe with this.

[Jeff Cassidy]

That actually was snack size and it was a flavourful snack. I kind of want the whole-

[Mike Magnuson]

You just kind of want a little bit more?

[Jeff Cassidy]

Yeah, interesting. I’ve never tasted podcasts.

[Mike Magnuson]

I’ve never left a conversation with mags wanting more but yet I have that sensation now. It’s so strange.

Well, we thank you guys for joining us. Jeff’s mom, my mom, we love you guys. Thank you for listening and…

[Jeff Cassidy]

Thanks mom.

[Mike Magnuson]

We’ll remind you that if you like what you hear, we do urge you to subscribe. You get notified, through whatever app you choose, of new episodes and please leave us a review. We’d love it if you’d share your feedback and it becomes the best way for other people to discover the podcast.

So, thanks again for listening. Mike It Up, we’re out.

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