Me with personal hero Steven Levitt at last year's PASS BA conference.

“And therefore Steve, this clearly indicates that you are entirely too expensive.”

Picking on a Hero?  Sacrilege!

I had a particularly energizing “remote assist” with a client today (on GoToMeeting).  Just fantastic.  I was smiling for 90 straight minutes at the pure awesome that the two of us were conjuring out of the data.

The lightning bolt realization that struck me, shortly after that meeting, was that a hero of mine might be in trouble.  (Well, only a little bit, but still – a little bit!)

Rumor is that Freakonomics author Steven Levitt charges something in the neighborhood of $30k to show up and give a 1-hour talk.  He’s the best keynote speaker I have EVER seen/heard, hands down, so I think he’s worth that, and I do NOT think he’s in trouble there.

I don’t think his book business is in trouble, either.  Again, fantastic books.  Love ‘em.  Untouchable.

But his consulting business…  hmmm…  yeah, I think Power Pivot professionals may have something to say about that heh heh.

Today’s (Redacted) Example – Cannibalization?

imageIt’s a shame that I just can’t come right out and describe today’s client engagement to you.  It is superbly educational AND interesting.  But hey, it’s sensitive information that I can’t share.

But I will describe it in broad strokes.  A company with about $100 Million in annual sales – let’s say they sell Artwork – started to diversify its product offerings a few years ago.  They started converting their stores, in “batches” of 1-3 at a time, from offering not just Artwork, but also Picture Frames.

So, over time, their “pure” Artwork stores became “hybrid” Artwork/Frame stores.  About two-thirds of their stores have been converted, and this happened over a period of about three years.

Their question is, are Frames “cannibalizing” sales of Artwork?  The idea behind introducing Frames was to draw people in to buy Frames, and then while at the store, the customer would make an impulse buy of some Artwork.

But the margins on Frames are much lower than on Artwork.  Yes, they make money on Frames, but let’s say it’s a 20% margin, whereas they make %40 on Artwork.

So if customers instead come in to buy Artwork and decide to buy a Frame INSTEAD, this is very BAD for their business.

They’ve encountered some anecdotal evidence that Cannibalization was indeed happening, and they are contemplating pulling Frames OUT of their stores and reverting to pure Artwork.

$100M Company.  Strategic Decision.  Six Hours.

Including today’s call, one prior call, and some offline work, I’ve invested a total of six billable hours in this problem.  Six.

Six.  Yeah, the number that comes after five.

And I believe we have conclusively proven that cannibalization is NOT happening.  In fact, Artwork sales are experiencing 10% “lift,” on average, in stores that have converted to hybrid Art/Frame product mix.

Our analysis strips a LOT of “noise” from the equation.  Our model and formulas look at each store’s conversion date, waits six months for the store to “stabilize,” then looks at the following six month window (months 7-12 after conversion).  It then compares THAT window to the “parallel” window from the year prior to get a “raw” gain/loss percentage. 

But then it repeats that analysis, across the entire chain of stores, to see what was happening chainwide during those same two windows.  Maybe overall growth was fantastic across that timeframe, and we don’t want that “fooling” us.  So we factor that out.

It also compensates for still MORE variables.  For instance, number of days that the stores in question were open is NOT the same across those windows, because of weekends and holidays.  Yeah, we compensate for that too.  We want, we NEED, a pure “apples to apples” comparison.

Punchline Time!


Remember, a $100M business was contemplating a massive, expensive, strategic change – a “de-hybridization” of their stores that would take millions of dollars and several years to execute.

And, in six hours, I think we effectively proved that would be unnecessary.  In fact, the net result would be to decrease profitability!  Leave it alone, sayeth the numbers.

This is where Steve comes back in.  He has a team of math/biz PhD’s that he deploys on client engagements JUST LIKE THIS.  OK, the companies are usually bigger – the multi-billion dollar variety – but the problems are structurally identical.  The same techniques are valid, because all businesses are “big” once they pass a certain threshold.

If he charges $30k+ for a 1-hour talk, I suspect he charges mid-six-figures for his team to solve riddles like this.

We charged our client $1500 and felt great about it.  Sure, maybe we will charge more in the future.  But even if we charged 10x more, or 20x more, it would still be dirt cheap by comparison.  And sure, we can’t solve EVERY problem, with Power Pivot, that his team tackles.

But we can solve many of them, can’t we?  Yep, I think we can.  That rumble you hear, Steve, is the footsteps of a growing legion. 

Please think of us as fans and disciples rather than an invading horde Smile