Bob Phibbs interviewed Greg Petro, CEO, First Insight at Shoptalk in Las Vegas. Greg talks about how his company helps entrepreneurs go to market quicker - especially with HENRYS - as well as his early days in retail as a buyer, and how racing cars helps him focus.
Bob: Thanks for joining me today on our podcast. Today I have Greg Petro with First Insight. Welcome, Greg.
Greg: Hi, Bob. It's so nice to be here.
Bob: So tell me about your company and what you do.
Greg: We help retailers, brands, and manufacturers bring the product to market and understand what the consumer's going to do before they make it.
Greg: So we do a pre-season.
Bob: You test it.
Greg: Yes, we test products pre-season, help them understand what to manufacture based upon consumer anticipated demand, how much they're willing to pay for it, and sort the segments that it applies to.
Bob: So let's say I'm going to come out with this pen. I come to you. I think this is going to be a great pen. It's going to be made of silk and graphite. And you're like, "Okay."
Bob: They're all going to be hand-made, $49.95.
Bob: I tell you, "$49.95. We have a great story. Made by virgins in the south of France, who make it under the harvest moon. All hand-branded, hand-done, the lettering is just all perfect." So I bring this to you.
Greg: Fantastic looking, too, by the way.
Bob: Yes, thank you very much. And so I hand this to you and I say, "Now, go tell us about what this will do." Is that how it works?
Greg: Sure. It is to a degree. I mean, there's substantively more to that in the sense that you need to understand, one, who are you trying to position this to?
Bob: Do most people know that?
Greg: They do. They understand where they're segmenting in the marketplace and who they're trying to attend to. If they don't, we can help them with that process.
Bob: So let's say my pen is a...I think this is going to be a luxury...it's a luxury purchase, 450 bucks.
Greg: Yes, so we would be able to help you understand how to test that product for that particular customer segment and even beyond it, right? At that price point, and a range of price points so that we could understand the price elasticity of the product by segment. So essentially, how much does the affluent customer, perhaps, make offer for the pen, right, and want to pay? As well as, you know, the area called "HENRYs" now. I don't know if you've heard that term.
Bob: I haven't heard that one yet.
Greg: High Earner, Not Rich Yet.
Bob: I like that.
Greg: Yes, HENRYs. So, you know, you have the affluent customer and maybe the HENRYs, and you're trying to segment each of these groups and figure out what's the demand for the pen at that price.
Bob: So how often would it come back that you would say, "Holy crap. You could get an extra 10 bucks on this?"
Greg: When we first started doing this, the idea was, are consumers actually going to reflect actual pricing? And we've been able to equate the actual sales data to our forecasts, and what we've found over a period of time, and we actually share this data as a leading indicator, that now it's about 8% to 9% of the products that we test will reflect a higher price than the ticket or MSRP that we're testing it at. That means that, you know, roughly 8%...
Bob: That's a lot.
Greg: ...of the products, yes, are...demand is higher at that price. So what's going to happen to a manufacturer, or brand, or retailer, is they're either going to sell it out at that price, because they didn't anticipate that, or they could raise the price. And the reality, though, is here's the interesting thing, over the last 10 years, that's dropped 3, 4 percentage points from 11%. And it's decreasing. It hasn't shown an increase uptick. Which means it's indicating to us that the companies are not taking enough risks in creating new products that consumers are interested in.
Bob: So they already have a prospective idea of what that product is, you just fit into that same category. It's not a game-changer, it's not exceptional, and...
Greg: Yes. I think, and you're seeing it in the marketplace today, right? Especially with some of the larger brands, it's hard for them to take fundamental risks in products and step outside the bounds in their designs. But yet, what the consumer is thirsting for is differentiated product, and they're willing to pay for it. That's why you have these digitally native brands growing really quickly.
Bob: Yes, these micro-brands.
Bob: So would you come back to me and say, "You know, that pen just isn't really...we don't think that's really good. We think you really need to...AI tells us, if it was in orange..." do you get that graphic, that detailed, or do you... What's the information that comes back if you get a stinker and you're like, "No, this isn't going to fly?"
Greg: Yes. So the essence is, first of all, we're not, you know, market research and product testing. We use marker or reference items, good and bad past performers, and then when a consumer actually is responding, we identify them as a good predictor, and then listen to them, if they're identified that way accurately within the pen category, let's say. And then roll up a couple hundred of those individuals and give you a forecast. And the data that comes out of it is four-fold. Number one, it'll be a ranking of that product that says from, you know, good to medium performer to under-performer in the marketplace, or however you want to identify the segments. But it'll rank the product. It will reflect the pricing, the average unit retail, or the ASP, depending upon what continent you're on. It will tell you by segment which area of the marketplace has the highest reflection or demand for that product. And then lastly, we will be able to reflect to you up a quantity that is likely to be consumed for that product.
Bob: Oh, that's nice.
Greg: Right? So in the essence, we're trying to give you the answers that I think most people are looking for, which is which of the right products to bring to market for the segment, at what price, and at what quantity depths, for us to make our margin or financial goals.
Bob: Before we ever order it in.
Greg: Yes, well, exactly.
Bob: That's kind of important.
Greg: Yes, yes. And if you think about it, we're doing it in design phases as early as 3D CADs, 9 months, 12 months, 18 months out, depending upon the product life cycle.
Bob: Now I understand that you also are formerly a merchant.
Greg: Yes, I was. So I started my career in the mid-'80s at May Company.
Bob: I was a Broadway guy.
Greg: All right. I appreciate that.
Bob: You must have been in Southern California or something.
Greg: I was just talking to some folks, former alums from Kaufman's in Pittsburgh.
Bob: Sure, okay, yes.
Greg: Yes. So I was there and I worked also at Lazarus Department Stores in Columbus, Ohio, and then...
Bob: Wait, on the buying department? Was it...
Greg: I started out as an assistant buyer, the merchant training program at May Company, and then actually did that for a number of years, then went into distributional logistics, oddly enough. Ran store operations, was divisional. So ran a cost lease division. So I've...
Greg: ...seen quite a number of areas in the operation.
Bob: You've got a lot of it. That's nice. That's nice. And what does... When things get, because you're in a pretty dynamic, fast-moving area, so when things get kind of overwhelming, how do you pull back from that? How do you find your center again? Or you just go, go, go?
Greg: For me?
Greg: Personally? Well, you know, I think that it's absolutely necessary for anybody to have time, right? So one of the aspects to reflect is that I actually race cars.
Greg: I know that doesn't sound like a downtime...no, yes, I do that.
Bob: How cool is that?
Greg: It is. It's a lot of fun. I got my racing license two years ago, and have been racing vintage Grand Prix. I actually wrecked a car last year, flipped it over. That was interesting, but it certainly...
Bob: But aren't you the CEO and president of the company?
Greg: I am, and...
Bob: Aren't they a little nervous? Like, strap yourself in, or a padding...
Greg: Well, you know, it's measured risk. But the reality is it does take you away, because if you don't focus, bad things are going to happen.
Bob: Right, right, right.
Greg: So...and there's a lot to that, right? I mean, obviously, you have to pay attention to the details. You have to focus. But it teaches you a lot about business. I recognized when I was going through my training as a race car driver that, one, I thought as a leader my vision was pretty broad, and then I realized, you know, when you're racing an open-wheel race car like a...not that I've raced the IndyCars, but a car that's very similar in shape and size, your vision is a lot broader than you think, right? And you got to pay attention to a lot of stuff around you.
Bob: So how... I just have to go... Now you've given me this whole sidelight that I wasn't expecting to go after. So how do you just wake up one day and say, "I'm going to go race cars," and then you go to school for it? There's actually a school for this, and then you get your own car? How does that work?
Greg: Yes, right. So I think it's...if you have the passion for something, you obviously pursue it, right? And so for me, I've always enjoyed cars, and I thought to myself that it was something that I could be good at. So a few years ago I set off to... You know, I was very pragmatic, get a lot of instruction, do a lot of training, and then go for the licensing. So that's what I did. And then I guess about a year and a half ago, got an opportunity, quite fortuitously, to pick up a car, and you know, it was just off to the races from there, I guess.
Bob: Amazing. What's the car? A Trans-Am? What was it?
Greg: It's a...actually, it's called a Turner. They're small, hand-made manufactured cars from London, England, or not...outside of London, that were made in the '60s. And so I race that as well as some other cars, but my car...
Bob: That's your car?
Greg: Yes, my car's a Turner. So...
Bob: That is so cool. Well...
Greg: Yes, fun and exciting.
Bob: That is cool. Geez, I'm a conductor, that's about all I...I'm always telling people what to do in my life. That's about my thing. So tell me something good about retail. What do you like about it? You've been in it a long time. My goodness, you've seen an awful lot of it.
Greg: I do. I see a lot in retail. I'm very fortunate in a sense that I get to meet a lot of CEOs, and at the same time, observe what I think is an environment that we're in right now that is super exciting. You know, in my 30-plus years in this industry, I don't think I've seen an opportunity in front of us as an industry that is both challenging, but at the same time, represents probably the greatest opportunity I've ever seen. And that, I mean, that's...the consumer's at the most dynamic point in the industry right now. He and she are changing at a just enormously fast click, and at the same time, I think technology is evolving very, very rapidly, and you know, ever since the smartphone came out, I think it's basically changed the whole dynamics of how organizations behave related to technology. We're in a highly disruptive state, which represents enormous risk and enormous opportunity, and for me, that's a fun place to be, being an entrepreneur, being a risk-taker, somebody who enjoys that type of environment. And to that point, I see these micro, as you said, digitally native brands represent enormous upside...
Greg: ...and growth for this industry. At the same time, and companies that are smart enough, anticipatory enough to the challenges that are being faced in the industry, and ready to take measured risk, are going to win.
Bob: Yes, I would agree with you.
Greg: Right? So...
Bob: I thought it was interesting, the Mattel guy, the CEO of Mattel, Richard, had talked about they now see themselves an IP company, and, "We're going to just find ways to tell our story and the toys are secondary." And that's pretty smart, you're going to go back and mine the...these brands have been here for 50, 60 years, and find a new way to do it. Well, that's quite a lot of risk, because you could have said, "We're in the toy business."
Greg: Right. I mean, just think about the idea that a company is looking at intellectual property as a differentiator, right? At the same time, I think you have companies that have an opportunity, are sitting on such great assets, right? I think store organizations represent a great asset if leveraged the appropriate way.
Bob: That's the question, though, isn't it?
Greg: Yes, but I think it requires a company to be creative, right? And I don't know that there are leaders at this point that are prepared for the amount of disruption that is going to happen, and their thoughtfulness about how to approach it. So they've got to take a unique approach, right? And I think they can win, and we're seeing it now.
Greg: So, pretty soon, so.
Bob: Well, good. Well, thanks for being on my podcast today, Greg.
Greg: My pleasure. Thank you.
Bob: All right, man, Thanks. And...