Karmaloop: Lessons Learned From Failure And Growing Experience

According to the world clothing shoes and hats net, American tide brand electric giant

Because of overexpansion, it failed.

The veteran carried the CMO banner and realized the Jedi reversal through data driving.

With the global

With the changing retail structure, it is time for CMO to upgrade its thinking and exercise its CGO responsibilities.

The following are lessons learned from Karmaloop's failure and experience of growth.

1. Giants Fall

In 1999, Greg Selkoe, 25, did not realize that he was about to change the trend industry in the US. Greg,

The young man with ADHD, hip hop and graffiti is not very happy. He majored in anthropology in college, and he lived in a house with his parents in Boston.

This year, the Internet bubble was booming. He suddenly realized what he should do.

So he pulled up his little buddy and set up an electronic business platform karmaloop.com in the basement of his home.

Greg's original intention is simple, that is, to provide a convenient channel for all young people to buy very cool clothes, even if there is no tide shop around, they can also order from the Internet.

At that time, "shopping on the website" is still a rare thing.

Greg's business model is also very simple, from the local purchase of street fashion clothing, the data hang on the website, and then mail to the order consumers.

I didn't expect this business to go on for 4 years until the age of 29, and he shipped with his wife in the basement.

However, for a long time, the praise of "marginal culture" has made Karmaloop famous in hip-hop, DJ, skateboards and other circles.

With the growth of Karmaloop and its peak in 2007, its revenue has doubled every year. Even hip hop superstar Kanye West has praised its platform.

In 2013, Karmaloop finally reached its peak. Its turnover exceeded 127 million US dollars, far away from other tidal brand business operators, ranking first in the industry, becoming the largest distribution platform in the United States.

In 2014, Karmaloop ranked 134 among the top 500 Internet retailers.

But behind the boom is $100 million in bank debt.

Karmaloop's street Kingdom has shown signs of collapse.

Since 2008, Greg, who has never received VCs, has received a large amount of financing from Comvest and other private institutions.

Greg, who has been dazzled by glory, has begun to expand. He has set up independent Niche stations such as PLNDR (flash electricity supplier), Brick Harbor (skateboard business), MissKL (female high-end tide card), Boylston Trading Co (male high-end tide card) and so on.

What is even more incomprehensible is that he ignored the opposition of senior executives and planned a TV program called KarmaloopTV to further strengthen his position in the trend.

On the other hand, the company admired the popular hip-hop culture, allowing employees to drink, play music and keep dogs in the office.

But what's worse is that it turned out to be an entertainment place directly for the office. As a CEO, Greg didn't know anything about it.

Slowly, the speed of making money is far behind the speed of burning money.

As a result, all of Karmaloop's expansion plans ended in failure, and only $14 million burned out of KarmaloopTV.

The chaotic management of employees in the Millennium also made the company unable to withstand the test of adversity.

Investors have gradually lost confidence in Karmaloop, and the company has no new funds.

In order to repay loans, Karmaloop had to take a big price cut strategy to clean up inventory, and many high-end brands often saw more than 40% discount.

Unexpectedly, the broken arms of the warrior not only failed to recover their income, but also aroused the dissatisfaction of many brands and pulled out of Karmaloop.

In late 2014, Karmaloop decided to adopt a lower cost Drop-shipping mode, that is, the straight hair mode, which did not store up its goods, and the consumers shipped the goods directly after the order.

In theory, this model has great hope of recovering losses and turning losses into profits.

It never occurred to me that customers could not get goods and could not get back because of customer service and logistics. Old customers were disappointed and scolded. Karmaloop offended consumers and businesses alike.

In 2015, the situation was completely out of control, and Karmaloop's turnover had shrunk to half its original value.

All the rescue actions failed, and Kanye West, who had released news to buy Karmaloop, had no voice.

Greg's ambition had to end. Karmaloop officially declared bankruptcy.

Karmaloop also received a very embarrassing "award". The largest bankrupt electricity supplier in US history was only $19 million owed to suppliers.

Greg himself has been in debt for $5 million.

In the end, Comvest, a private equity firm investing in Karmaloop, spent $13 million to buy the mess. The former giants were forced to sell themselves for a month's turnover.

2. the new official takes office.

After Comvest took over, the first thing to do was kick off Greg's CEO and quickly invite Seth Haber, the fashion industry veteran, to take charge of the company's power.

But as an electric company, the importance of marketing is naturally needless to say. Karmaloop needs a CMO to help them get through the mud.

Soon, Comvest was the best candidate, the Drew Sanocki, the protagonist of today's story.

He is also a legend in the retail business.

In 2003, DURU set up its own platform, Design Public, which sold high-end furniture in the form of YISHION Dropship, and achieved millions of dollars in revenue in the first year.

In 2011, when Karmaloop was still thriving, DURU sold his company to a private company.

Since then, financial freedom has decided to retire to the second tier and become a partner in private partnership.

He has a deep insight into retail marketing.

At the beginning of the establishment of Design Public, he was acutely aware that search engines would be the gateway to Internet traffic, and set up an automated SEO system to successfully seize the opportunities.

In the face of his competitors' pursuit, he hired a comic writer to write instructions for his products, which cost hundreds of dollars per bid.

At the invitation of Comvest, DURU decided to take the challenge and take the lead in becoming Karmaloop's CMO.

Karmaloop has always had the top marketing capability.

10 years ago, when the concept of "growth hacker" was not yet born, Greg began to try the strategy of "0 cost index growth".

At that time, the paper media also occupied the market's right to speak, but Karmaloop had created an exclusive interview with street artists and hip-hop musicians, distributing them through blog and email push, and gained a large number of users with almost no money.

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But when DURU started his business, Karmaloop was losing nearly a million dollars a month.

Karmaloop's flow and revenue curve fell sharply

The main reason for the dilemma, he found, was a mistaken understanding of the "growth hacker" system: only paying attention to the user, but not paying attention to a large number of users, and not creating any value for the company.

After a large amount of investment in 2008, VC was eager to see the results.

So Greg decided to cut down the shortcut and spend money on traffic.

As mentioned in the previous article, whether it is a TV program or a new branch brand, it is to occupy the entrance of the traffic.

In addition, Karmaloop has invested a lot of manpower and resources to do Google Adwords, PR, offline stores, paper media and so on.

At this time, no one realized that the flow of vanity did not bring revenue.

However, because of the excessive exertion and the burning of all the money, the company began to run into debt.

Banks are still pressing money back every day, and Karmaloop is forced to think of ways to increase retention and promote liquidity.

However, impatient Greg simply cuts across the board and uses discount promotions as a means of activating users, directly promoting retention and realisation.

This is actually totally wrong, because the users who are attracted by discount will inevitably have low consumption ability and low life cycle value.

This worsens the already undesirable retention rate, which is not enough for advertising revenue, and also offends suppliers.

Finally, in order to save money and increase the profit of realizable links, Karmaloop decided to adopt Dropship straight hair mode.

However, this is also the opposite. A large number of high-value old customers have been lost, and the original fixed income sources have been hit hard.

This brought Karmloop into a vicious circle, burning money continuously, low quality new customers are increasing, high-quality old customers are decreasing, and the company's losses are becoming more and more serious.

DURU realized that if we want to turn the tables, we must get more high-value customers and keep them, so that they can bring enough income.

3. user acquisition

Faced with a mess, duroe encountered a problem: where does the high-value customer come from?

3.1. pforming low value users

Obviously, the most practical solution is to convert the former low value users into high value users (or select potential high value users).

To this end, he tried his own practice for many years in the "mixing network strategy", which is mainly divided into three steps:

1. data modeling for high value customer behavior

2. find the deviation between actual data and ideal data (that is, "mixing nets").

3. focus on the time and effort of marketing to correct these deviations.

Dr drew himself gave an example:

He goes to a gym called Slow Burn every Friday to exercise. For the gym, he is an ideal customer. "Every Friday comes to fitness" is the so-called standard model.

But after a few months, he did not want to go.

There are three possible reasons.

1., I found another better gym.

2., the price is too high.

3. become lazy yourself.

"Stop fitness" is the so-called deviation.

Slow Burn noticed the situation and began a series of marketing activities, which reminded him to control his laziness and sent him a coupon.

After receiving the coupons, he began to feel ashamed of his laziness, so he went back to the gym again.

The core of this theory is that companies should not invest the same marketing costs on all users, but instead find the "nets" that hinder ordinary users to become high-value users, and then devote the greatest effort to solve this obstacle.

From the first day of his employment, he spent a whole month studying the paction data of Karmaloop in the past 10 years, and analyzed it by using RFM model.

According to his theory, first of all, we must find out these "high value" user behaviors, and then encourage these behaviors continuously, then we can pform the low value users into high value users.

He created two simple user layering:

Whale: repeated purchases, high consumption, very few returns.

It represents the user layer of high value and high LTV.

Minnow: buy only once, only buy cheap goods, and return rate is high.

It represents the low quality and low LTV user level. If the cost is calculated, the layering is actually losing money to the company.

Du Lu surprised to find that "whale" accounted for only 1.3% of the amount of visits, but contributed 43% of the income.

These historical data expose Karmaloop's problems, too many minnow and whale are too few, so they have been losing money.

The next step is to find out the common behaviors of whale. He really wants to know how long these high value users spend second purchases.

Du Lu uses two simple steps to analyze recent order data:

1. select all users who meet the "whale" feature.

2. calculate the average number of days between first and second purchases.

The results of the analysis are as follows: the green bar is the index that Du Lu wants to observe.

The X axis represents the interval time. Y weeks represent how many users spend the interval to purchase.

He found that in 80% of cases, if a user had to order two times, they would complete second orders within 30 days after the first order.

That's right. This is duer's "mixing net" - most of the "minnows" do not reproduce during the 30 day cycle.

Previous data analysis shows that if a user is single in the first day, but there is no two order in the next 30 days, then he will become more and more unlikely to become whale.

However, if they make a single order within 30, they will have a great chance to become whale.

What Karmaloop needs to do is to use reasonable marketing methods to communicate with these "minnow" user level, guide them to order second orders in the 30 world, and gradually pform them into "whale".

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Based on the above analysis, he formulated two marketing strategies:

1. within 30 days - > the user has the opportunity to complete the two repeat purchase > to sell the original price (Gao Lirun) to the user.

2. after 30 days - > users are more and more difficult to complete the two repeat purchase > > use large discount (low profit) to stimulate users.

Seeing here, it is not difficult to understand why Karmaloop is going to lose money. Why should we give them a discount if there is a great chance that users will buy it within 30 days?

As CMO, the first action of DURU was to no longer send coupons to users in the 30 day cycle.

On the other hand, after more than 30 days, the probability of user repeat purchase still decreases as time goes on.

Therefore, DURU set a gradient for coupons and the longer the interval, the greater the discount amount.

Therefore, the complete process is:

1. if a user is in a 30 day period after the first purchase, he will be pushed to the original price.

2. after 30 days, the 10% discount coupon will be sent to the user.

3. if it exceeds 45 days, push 20% discount tickets to users.

4. if you exceed 60 days, 30% discount tickets will be pushed.

5. if the user regenerates at any stage, the subsequent discount will not be triggered.

6. the time period and the discount rate will be adjusted according to data feedback.

How to push marketing information to customers?

In the overseas market, Email's status is equivalent to the domestic public number. Karmaloop has accumulated millions of Email subscribers over the past decade. She has decided to take advantage of these inherent advantages and take Email as the main battlefield of marketing.

With the help of the team, he built an automated mail system based on CRM and Klaviyo software.

When the mail gets a good result, the marketing team will quickly update the activity to the website homepage, Facebook targeted ads, or even the mailed cards.

3.2. social media

Now, some potential "minnow" has been pformed into "whale".

However, compared with previous losses, the current revenue growth is far from enough.

As mentioned in previous articles, social media is a must for the fashion industry.

So then, DURU started looking for new social media channels to further acquire high-value customers.

1. first is Instagram.

According to Du Lu's news from Shopify, 90% of all Shopify stores with more than one million dollars in revenue are relying on Instagram for marketing.

So DURU also wants to try it on Karmaloop.

He selected a highly motivated young man from the team to be responsible for the operation of Instagram and other platforms, and constantly seek opportunities for KOL cooperation.

2. followed by Youtube.

Before the company went bankrupt, Greg's KarmaloopTV project took a lot of original videos, all on YouTube channel.

But now that there is no money, the channel will not be able to continue.

So DURU gave up the idea of original video and turned to the power of KOL.

On the Youtube, there are many net red known as "hauler". They often shoot the open box evaluation of the tide card and explain the clothing.

Naturally, these net red fans must be Karmaloop's accurate customers.

Du Lu immediately arranged for the team to take a large number of hauler, give them the signboard products sold by Karmaloop, and join them in organizing the sweepstakes, focusing on Instagram and sending messages to tide cards.

4. activation retention

The growth of high value users is only the beginning.

Next, there is a more important step: to activate and retain them.

At that time, DURU applied the life cycle marketing strategy, that is, pmitting the right information to the right people at the right time.

After analysis, he built a customer life cycle process:

It can be seen that any customer will go through three stages: novice period, active period to loss period.

With automated mail systems, DURU lets marketing mail run through every customer's life cycle.

Starting with getting customers, the 5-6 mail campaign is running.

No matter which time node the user goes to, he can receive the most appropriate marketing information by mail.

1. novice: the marketing objective of this stage is to guide users to produce the first purchase.

When users sign up / subscribe to mail, immediately start the "welcome series mail" - that is, use 5-7 messages to gradually establish brand trust, pass the value of Karmaloop, and publicize part of signboard products.

After the welcome phase, many users are ready to cut their hands.

But from building trust to final payment, there is also a "invisible killer": abandon the cart abandonment.

According to 2016 figures, the average rate of car abandoning is 77%.

Therefore, DURU set up a series of mail to recall those who abandoned the car:

2. active period: the marketing objective of this stage is to keep users active and continuous consumption.

How can customers keep paying attention to Karmaloop? DURU's team has created a VIP plan: if a user's consumption behavior is close to "whale" (for example, if he drops the order, and the average order value (AOV) or the average number of orders exceeds a fixed value, he will be defined as VIP user, then trigger the corresponding marketing activities (such as special discount), and the user will receive a thank-you email.

3. loss period: at this stage, the purpose of marketing is to recall the old customers who have lost.

In fact, most of Karmaloop's old customers are still at this stage.

The dying struggle of companies during their failure has greatly affected their experience, resulting in a sharp decrease in trust.

Now that these old users are on the mail subscription list, is it not very simple to continue to use the mail to recall them? However, DURU immediately realized the difficulty of underestimating it.

When you lose a person's trust, it's hard to win the second chance.

After hitting the wall, DURU immediately launched the secret of growing hacker - A/B test.

He divided the old customer base into 10000 groups, and gradually tested different solutions.

They first tried the discount in the 10-30% range, then tried the next time to buy the cash back, followed by a gift card, and finally tried "CEO letters" or even called.

After unremitting efforts and 20 failed tests, DURU finally found the best combination, and the old customers gradually recognized the new Karmaloop.

In order to better understand the behavior of high value users throughout the life cycle, DURU's team also used SurveyMonkey to conduct a NPS survey, asking users how much you wish to recommend Karmaloop to friends (1 to 10 points). Besides, the questionnaire also includes several core questions:

1. where else do you shop?

2. which products should we sell but not sell?

3. what blogs do you usually read?

Through continuous learning and understanding, DURU has a more precise grasp of customer needs, greatly improving the user experience and customer service of Karmaloop.

In previous operations, Karmaloop did not carry out any customer life cycle marketing, which is a great breakthrough.

5. increase revenue

With the help of DURU, Karmaloop has finally been able to retain high value customers.

However, in order to form a complete closed loop of growth, the final profit stage is still bad: to turn the remaining customers into revenue.

Due to the failure of the previous Dropship mode, Karmaloop has to return to the traditional stock mode.

Therefore, the way to increase profits by squeezing costs is not feasible.

So, Du Lu tries to increase the average income per user (ARPU):

5.1. raise unit price

In fact, the discount strategy before Karmaloop is a serious violation of its commercial value: Chao brand itself does not have much material value, more spiritual and cultural pursuit and recognition.

For example, Supreme never discount, but the new products of the official website are always sold out in dozens of seconds.

He believes that after some adjustment, the existing users of Karmaloop are not rushing cheap but the value of the tidal wave card.

So how much money do consumers want to spend on Karmaloop products?

DURU continues to carry forward the spirit of growing hacker and starts the price experiment. According to the relationship between supply and demand of different commodities, it gradually raises the price after grouping, and then observes the buying behavior of users.

He first turned his attention to Karmaloop's hottest T-shirt.

After a period of increase in price, he was surprised to find that a 30% increase in price did not affect sales. That is to say, the income of this category increased by 30%.

5.2. cross selling

Data show that Amazon's 35% revenue comes from cross selling (cross-sell).

In Karmaloop, DURU began to practice cross selling - in brief, it was to sell our company's B products to customers who purchased the A products of our company.

From a psychological point of view, the user who has just completed the purchase is in the "shopping period", the psychological defense line is very weak, it is difficult to resist the two temptation.

With the help of email marketing, Karmaloop can greatly enhance the customer's life cycle value.

Recommend other colors to those who bought the T-shirt.

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6. Jedi reversal

In less than 3 months, DURU has achieved remarkable results, raising the company's revenue by 30%, and the ROI of the customer life cycle marketing activity is as high as 500%.

In the end, only 10 months later, DURU turned Karmaloop into a profit.

1 and a half years later, Karmaloop was sold to Shiekh Shoes, a US shoe retailer, for tens of millions of dollars, and the giant that had been erased from history once again became alive and realized the real Jedi reversal.

Of course, credit is not only for Du Lu.

In the process, Karmaloop's CEO also played an important role, including negotiating with the brand side, rectifying the company's management, adjusting the supply chain and so on.

On the other hand, there are also a team of qualified engineers, including an email marketing engineer, a design creative team, and support from the entire product department.

Sum up

This case shows us clearly how a CMO can make use of data to make decisions and scientifically promote the growth and improvement of companies. These are the responsibilities of chief growth officer CGO.

It seems that Coca-Cola instead of CMO with CGO is not hype, but a real demand.

How can CMO be avoided? Of course, it is adhering to the idea of fine operation and adhering to data + technology driven growth.

To sum up, what did Du Lu do to bring Karmaloop back to life?

Of course, we can learn a lot from Karmaloop.

1. fine operation determines success or failure.

We can find that Karmaloop has never done customer stratification before, nor does it analyze the customer life cycle, nor does it have the concept of automated marketing.

Because it relied on the early dividend of the Internet and did not know the value of the traffic flow. This is similar to the current situation in China. After the dividend has gone, barbaric growth needs to be turned into data driven.

2. growth is a complete system.

The acquisition, retention and realisation are not separable.

Karmaloop only pays attention to the customers, pursues the short-term outbreak, but neglects the long-term value accumulation, which inevitably leads to avalanche effect.

3. it is not advisable to increase users by discount.

We must say that it is a shortcut to take advantage of people's mentality of being cheap.

But this will inevitably lead to the low quality of users themselves, and it is difficult to import subsequent retention and realisation links.

More importantly, once you start to discount, you can no longer turn back and fall into a vicious circle.

4. do one thing best.

The main reason for the failure of Karmaloop is that it is too distracted and eager to build all kinds of peripheral brands.

In the final analysis, all are aimed at increasing the influence of the brand, but too "saving the country through curves".

It's better to be practical, for example, to make the SEO of the tide brand the first, or to make the Instagram fans 1 million.

5.Dropship pit too much, no experience, do not try easily.

As a past person, this is my personal suggestion.

At the same time, we can learn a lot from this CMO.

1. growth is the result of teamwork.

Foreign surveys show that the main obstacle to growth hackers comes from the boss.

Therefore, growth is always top-down and full staff all in.

Just think, even if the level of Du Lu is higher, if CEO does not support, employees are lazy, can we achieve such a result?

2., be brave enough to try and make mistakes.

The management of a company often has stock concerns.

But for the endangered Karmaloop, DURU can just throw away the burden, from marketing activities to product prices, and boldly carry out various experiments. This is also the spirit of hacker growth.

3. pay attention to the operation of VIP users.

The 28 effect is particularly evident in the electricity supplier industry - 20% has contributed 80% of its revenue.

However, most of the time we treat these 20% "gold masters" as ordinary people, which is obviously unscientific.

We must identify these high-value users, cultivate them with different strategies, and tap more potential consumption values from them.

4. attach importance to data and technology.

If data is the soul, then technology is the body.

In the process of running Karmaloop, he personally collated and calculated data, rather than let his staff send a report.

On the other hand, he pays great attention to automated marketing, Karmaloop - all mail marketing is triggered automatically according to customer behavior.

Without this system, it would be very difficult for DURU's idea to come true.

More interesting reports, please pay attention to the world clothing shoes and hats net.