Wednesday, April 5, 2017

Principle 3: Build Jobs on a Profit Base Through Micro-Merchandising



All Marketing starts with the individual

Micro Merchandising integrates production with consumer value

When you’re capable of making individual products at full manufacturing speed you can use micro merchandising to address individual customers instead of groups or market segments or even niches. For instance, if you have a situation where you have a specific style that everybody wants like a fleece hoodie.  Then you can address that shape with all the different decorations and colors that might sell to just one person in some obscure country somewhere in the world.

Always Make a Profit

When you digitally produce one item, which is already paid for, from a virtual inventory, you make a gross profit every time. Paying in advance makes unit production purchase activated.  You will always make more profit per unit than you make if you mass produced a product to get a lower cost and then have to sell out your entire inventory to realize the savings.  When companies mass manufacture in advance, sooner or later they have to discount or dump over stocked product.  Even if a garment is popular and sells quickly, when all the popular sizes are sold, someone will have to eat all the odd sizes. Both of these problems will take away from profits. The idea micro merchandising is to open a style (silhouette) with a wide scope of prints and color choices spanning the entire market to reach even the most obscure group of individuals. Remember, you have no risk in creating an individual virtual design and if somebody buys that item you’re always going make a profit. Since you are normally printing in process color the cost is the same every single time no matter what color the artwork or complicated the decoration. Regardless of who your target customer is, even if it’s one person in a bayou in Louisiana and you’re just making a personalized jersey for a worker on the softball team at the Tabasco factory on Avery Island.  You are still going to make exactly the same profit that you made for someone who is a pro football fan and wants a specific name or number. This transition to virtual risk instead of financial risk is intuitively difficult, it is very important to constantly remind yourself that a massive inventory of virtual product that can fit in your smartphone, makes a lot more profit than the one hanging in the warehouse.

Building a Micro Merchandising Campaign

Let’s look at how a micro merchandising campaign gets organized. Currently we look at apparel in two forms of merchandising organization. Apparel producers look at products as collections or they look at the seasons. They try to build around those models simply because they have to order in large volume. They want to have some organizational grouping to sell at retail so the purpose is to be able to have a display that has some continuity and planning cycles. This event-based structure creates traffic and helps shoppers find what they’re looking for. Retailers can create display excitement and build traffic pattern through the store. Shoppers can look through common product theme of the collections including displays of different products of the collection. Everything from accessories to actual apparel can lead shoppers to different points around the store. If it’s a seasonal structure then all the products in that particular area, like tops or the pants or shoes all fit that season. When the whole store changes from winter to spring the prints and the colors change. 
The problem is not everybody wants to buy on a schedule dictated by the supply chain’s most efficient cost of mass production. Consumers want to buy what they want when they want it. This means a growing number of potential customers are no longer shoppers wandering the mall.  This new rapidly growing segment is searchers looking for a specific product that meets their current need.  This massive dis-synchronization between mass production scheduling efficiency and individual consumer purchase timing has always been accepted as an unchangeable reality of mass merchandising. Giant mass merchandisers mitigate this dysfunction through purchasing leverage and the value of lower prices.  Specialty stores try to use real or contrived giant markdowns and clearance events to make the same appeal to consumers.  The basic dysfunction is still the same.  Retailers cannot clear their entire inventory by telling the consumer what and when they should buy. Clearing the inventory by having the last shopper buy the last product at full retail price is the retailer’s impossible dream. Micro merchandising linked to Purchase Activated Manufacturing (PAM) can finally make that dream come true.  

Structuring Micro-Merchandising to a Product Group

When you manufacture after purchase in a consumer activated Integrated Mini-Factory there is no physical inventory to discount or dump. The marketing tactic for creation of this hyper profit demand environment is micro-merchandising. The effective application of this individualized selling requires new organizational structures for product presentation. There are three sequential levels to building a micro-merchandising campaign.  The sequence layers technology and offers additional consumer participation and value at each level.  The process also offers the provider the opportunity to develop and fully test each level before adding the next layer.  The levels are identified by the main feature they offer, the first level is the catalog level, followed by the customize level, followed by the individualize level.  Each level has tasks and technology, which synchronize with the next level.  Building the levels in progression allows a merchandiser to anticipate the features needed at the next level and avoid software backtracking that costs time and limits offering growth.
Catalog Level
The catalog level is the primary building block of micro-merchandising where the essential integration between merchandising, sales, PAM and fulfillment is established and coordinated.  The first decisions are to establish the market space and selling platform.  In short, what are you going to sell and how are you going to sell it?  In apparel it is important to remember all the required production steps in order to insure the best possible efficiency and lowest PAM production cost.  For instance, look for common fabric construction types (knits or wovens or laminates or non-wovens) this can make a huge difference in the type of cutting and sewing equipment needed in the PAM factory.  Remember coloring and printing are an integrated part of PAM, so fabric choice is generic white or greige, so swimwear, leggings, tops and underwear are all from the same construction family.
Second, decide if the selling space is online, retail or both. Building an accessible virtual inventory is required in either selling space.  The catalog level requires the design software to produce 3D/360 output for the catalog and matching 2D RIP compatible output for PAM.  In addition the software should have PLM link for generic POA and virtual inventory management and production/fulfillment tracking.  The next level, Customization, will require an embellishment layer, which needs to be compatible with the catalog images.
Once the basic silhouettes have been chosen, a merchandise matrix can be constructed for detailed planning and scheduling of the designs that will be offered in the virtual inventory catalog.  
The product matrix is a three-sided image (see illustration) that can help visualize the choices and priorities of developing the full virtual inventory.  The virtual inventory has no limit in size since it only exists in the catalog data cloud.  However, with size comes great responsibility, the cloud must be easily searchable and a comfortable visual experience for the consumer or wholesale buyer.  The images need to be high-resolution 3D/360 and easy to see and find on multiple devices.
Virtual Inventory and PAM Integration
The integration of production (PAM) and the virtual catalog is not difficult if silhouette discipline and compatible software are maintained.  The sequence is easy since the parts are available in the market today.  First, build the gray silhouette in the compatible 3D/360 software and check the graded sizes for production pattern capability.  Once the production patterns are approved the 3D/360 design software avatars can be draped or filled with any color or design that fits the micro-merchandising selling sites selected.  Silhouette disciple is important to insure that costs remain constant and manufacturing meets PAM delivery criteria.
Key Features of the Catalog Level
  •  The POA for final manufacturing can occur in store for instant gratification (like the paint counter cited in Blog #2&3) or in a local PAM factory for daily delivery.
  •  The virtual inventory is based on decoration not designs by fabric cut.  Cut and seams are only required for change in fabric construction or closures and fasteners. Other seams between colors and areas can be printed with high resolution that reduces sewing and cutting costs.
  •  Close integration (order transmission) can allow PAM to produce a physical inventory that is already sold, which produces much higher profits and no overstock or out-of-stock sourcing.
Customize Level
The customize level of micro-merchandising allows the consumer or wholesale/retail buyer to add embellishments and color changes to catalog products to create unique personalized garments or a line of private label apparel.  This level adds a layer of object art, trim or color to the catalog offering.  This new SKU is visualized on the 3D/360 avatar and placed on the 2D production image automatically. 
This capture is from an  Embodee (embodee.com) demo the leader in 3D/360






The choices are selected from a side menu of “brand rules” tested in advance for compatibility.  Although some of the trim and fastener items may have to be physically inventoried in generic colors, many can be colored or produced along with personalized care and brand labels using digital technology as part of unit production in the PAM factory.
See the entire video on Embodee's 3D/360 at:  https://www.youtube.com/watch?v=UnG67C3kj-c&t=3s
Key Features of the Customize Level 
  • Consumers can create personal value through participation in the design and manufacturing process supporting higher retail value while maintaining constant cost model on presold goods. Translation: higher margins without inventory risk equals greater profits. 
  • Retail and wholesale buyers can create private label versions and test them online without risk. Result, greater product differentiation without unsold inventory risk.
  • Brands can tweak designs under pseudo names and gather massive demographic and consumer data online without risking brand position or wasted minimums. Result: sell to retail with hard sales projections by geographic and demographic results and no risk of “charge-backs”.
Individualized Level
The individualized level is characterized by a multitude of micro sizes built to match individual shapes and then visualized in virtual catalog changes to the avatar in the 3D/360 to match the body type of the individual consumer.  All the embellishment capabilities are still in place and retained the cutting pattern as it morphs into a tailored garment.  This perfect fit feature can be input through body scan, retail smart mirrors, smart phone and home game scanners and once the individuals point cloud is established it can be applied to the entire catalog creating a realistic view of apparel choices.  This ultimate consumer value proposition can generate generic design planning and market advantage data that can reduce risk and drive profits.
 Watch this entire video at: https://www.youtube.com/watch?v=BeUHLNhS3BY

Key Features of the Individualization Level
  • Consumers can create a virtual store using fit and fabric of their previously purchased silhouettes to use for reordering or redecorating and repurchasing. Creating sales without new design, marketing and development costs to retailers, brands and manufacturers. 
  •  Generic production data from private consumer virtual stores added to current trend analysis technology can drive future catalogs and planning much more accurately. 
  • Consumer brand loyalty will become a personal attachment for future purchases.

The Consumer Participation Experience

An apparel searcher/shopper becomes an apparel purchaser based on a sequence of decision questions:
1.     Purpose: What am I looking for?
2.     Look: Does this look fit my purpose?
3.     Fabric: Does this fabric work and feel right?
4.     Fit: Does this garment fit me?
5.     Price: Does this price match the value?
Answering these questions is the requirement to convert a retail or online searcher to a purchaser that activates the virtual inventory and PAM production.  Since purchase can drive the process for both retail and online activity, a review of each question on in each selling space is required.
Purpose: The x factor in the purpose decision is “brands”.  Many brands have established an identity around specific positioning like recreation, athletics, business wear or children’s wear. That positioning can direct the decision to search a specific retail specialty store or a specific site. The brand’s detail purpose features ultimately gives the advantage to the online seller because the performance and visual information can be sourced much easier on the internet.  In addition the retail store can require significant time and work to find the product… if it is still in stock.
Look: Here the advantage can depend on the sellers (brand or retailer) use of social media.  Look is a product of both personal taste and peer influence social media can influence both.  If the apparel has the “look” and is linked to a convenient retail site then instant gratification can dominate the decision and retail wins.  If the is no link or convenient location, online PAM delivery direct to the consumer wins. 
Customer creates the "look" at retail with virtual Kinect® technology.
A mitigating factor is an online kiosk or display in the retail store with direct access to the virtual inventory.  If the consumer can feel the fabric of try on a grey fit version and select color and print the store will win the sale for direct shipment.  Links to virtual try on technology: https://www.youtube.com/watch?v=Mr71jrkzWq8&t=75s, https://www.youtube.com/watch?v=nWcGhuX6N7w
Fabric: Consumers need both tactile and performance comfort with the fabrics and fasteners in a garment they decide to purchase. An instore touch screen display, like the one pictured below, can allow consumers to try on solid color garments for fit and fabric feel.  Then they can scan the tag and have access to the entire virtual catalog in that fabric and silhouette and add embelisments in the store or later at home.  They can then order and pickup or have it shipped to their home.  If the store has onsite DTG they can produce a PAM product in a few minutes from the customers choice.
Retail touch screen gateway to the entire virtual inventory.
Retail has the direct advantage in this situation since the actual product or a gray version or swatch can be physically examined.  Once online sellers get to the Individualization level that advantage is almost eliminated by the ability of consumers to source and repurpose product they already have purchased in another form, color or print.
Fit:  Retail has the advantage because of onsite accessibility, however; online has the advantage in market reach especially at the brand level because of consumer familiarity with a brand’s grading and quality level.  When no retailer is convenient or the consumer already has a similar product online wins the sale.  The down side for online is a much higher level of returns because of bad fit or multiple buying to find a fit.
Price: Retail has the initial value advantage because of the need to clear product for event or seasonal restocking.  Once the clearance event is over and the remaining product is dumped to the second level the advantage moves to online for two reasons.  First, online searchers are more likely to be looking for the unsold sizes because online sales tend to move the extreme sizes more that retail.  Second, online discount sites offer even lower discounts than retail so price value is an even bigger factor.
Enhancing the Consumer Search Experience
Multi-layered search criteria like lifestyles layered on color layered on content so consumers can find blue wild flower prints any time and use them to color a pair of leggings, a long or short sleeve top or a matching scarf.  Online customers in most cases are searchers that turn into buyers, rather than shoppers that just wander around and buy whatever happens to pop on the screen. Today’s customers are actually looking for something specific, so it is extremely important to create a volume of metadata linked each product to allow search engines to find the content and features of that product. Searchers need to be able to type in a key word and sellers need to have enough reference words tied to product in the catalog that searchers they are taken directly to the seller’s catalog. Creating detailed metadata can create a structure where searchers can find product. A layered structure combines different variations of the basic product and can take customer to a page where there are different choices under that one category.   This is not a new technology; online sellers and search engines use suggestive banners and pop-ups every time the user clicks to a new screen.  Apparel producers have been limited to more general market segment suggestions because of the requirement to move larger volumes quickly to clear inventories.
Enhancing the Products Personal Value
Once the customer has found the product they can now leave the catalog layer and enter the configurator layer of the merchandising software. In the configurator layer the consumer or buyer can change colors and add embellishments from a secondary clip art and trim sidebar menu. This allows the buyer/consumer to create multiple versions of the chosen silhouette to build a private label line or to create a set of choices in the consumer’s personal closet.  When sellers require physical inventory the marketing of multiple versions and consumer customization was cost prohibitive. Each choice by a buyer or consumer created a new SKU and a requirement for inventory of colored fabric and trim with all the attached inventory and waste costs. With the advent virtual inventory with POA’s in materials and agile manufacturing technology and integrating the principles of PAM the SKU’s become virtual and only create direct cost when the product has been purchased.
Target Groups of Individuals with Shared Interest
The goal is to try to find groups of individuals who fit into product shapes that you can decorate to give them individual choices. Groups like clubs, sports fans, or temporary social connections like graduates, back-to-school, brides, etc.  A specific example is one of the great under served apparel niches that has occurred in the last 10 years, is the couch athlete market.  Couch athletes sit on their couch and play some electronic game or concentrate on some fantasy football league or baseball league but they are just as involved and mentally attached to their sport, game or team as someone who’s playing physical sports. In fact many of them make as much money as the lower levels of professional sports. They identify with their characters and with the scenes that they play in.  They identify with their fellow competitors, remember they’re playing over the Internet so they’re playing against somebody very often not just against the creator of the game. Often they are playing visually, there is a two way video connection so they want to be dressed properly they want to identify completely with their with their characters. This entire world doesn’t even have a piece of apparel.  The sub market however is all individuals, each player identifies with a different character in the game. Players identify with a different color or different weapon or a different team. The goal is to take advantage of each individual identity, even if you create only a single form or single formula for the fashion. Suppose everybody is going to be wearing either short sleeve are long sleeve crew neck loose fitting light fleece. Because a lot of these players don’t look particularly good in compression fit, we’ll go with the loose fleece. The idea is that were now in a position to have a base visual so you create that gray style. Since there is no inventory cost, thousands of character from hundreds of games can be viewed and tried on with a click of the mouse. Consumers pick the characters and the original game artists and distributor ends up getting licensed art fees and you have a huge market. It’s a very predictable market because you know how many games are sold and you know exactly how many people are competing online. You know exactly how many players you’re focused on and more importantly you know who they are and their email address and you can send promotions specifically to them. This consumer target represents all the basic characteristics of micro merchandising, you are focused on individual’s value of the design, and you can create extreme profits from leveraging the individual consumer’s selection and participation value.
Social Media
There are many forms of social media that can enhance market reach and consumer value the most importnt critea is to focus on the visual customer experience.  Fashion blogs and picture sites along with strong search data can determine the level of demand and purchase that drives the PAM factory.  It is very important to find and engage specialist and online site assistance in making sure your micro-merchandising message reaches the largest market reach possible.  Remember there is no manufacturing without demand and purchasing.

Lessons Learned about Micro-Merchandising:

  1. Silhouette discipline is critical to efficiency and sustained profit.  Concentrate on color and decoration to preserve constant cost levels.  This is the opposite of current mass manufacturing and hard to accept, but without this discipline merchandising and manufacturing cannot be integrated.
  2. Market reach online is world wide... micro-merchandising integrated with PAM allows virtual inventory designs for every culture and group.
  3. Retail stores can produce or build product from the virtual inventory onsite.  Touch, fit and design for each customer and always sell at retail price with a profit.
  4. Technology is available at every level; design, test market, sales, production and fulfillment, the key is integration and connecting the software.

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