Analytics Insight

In the June issue of Catalog Success magazine, catalog veteran and consultant John Lenser — in "RFM Turned Upside Down - How online ordering is changing the age-old circ plan formula" — made one of the most astonishing claims I've come across in a long time.  Consider the following: 

What do you suppose would happen if you mailed a print catalog to 1x-buyers who placed their order on the web? Do you think they'd reorder at higher, lower or the same rate as the same web shoppers who did NOT receive a catalog? 

What about multi (2x+) web shoppers (again, catalog vs no catalog)? 

What about web shoppers who hadn't placed an order in well over a year? 

Internet buyers often behave quite a bit differently from their catalog counterparts.  So I would have guessed that mailing the catalog would have little to no effect on the web channel's reorder rate.  As it turns out (and this isn't in just one isolated test case, either) the catalog mailing significantly depressed the reorder rate under all three of the above scenarios!  Consistently and dramatically, too.  In short, he observed that web shoppers who received a catalog reordered at a substantially lower rate than those who did not.  Here's a few excerpts from his article: 

"In a recent test we conducted with a client, we created two panels of 50,000 customers each, both groups acquired on the marketer’s e-commerce site within the past three months — neither had been mailed a catalog.

One panel was mailed a 48-page catalog; the other was not mailed. Based on a later matchback to the mail files, the one-time buyers not mailed the catalog responded at 3.7 percent, while those mailed the catalog responded at 2.1 percent. Of the two-time-plus buyers, those not mailed a catalog responded at 8.5 percent; those mailed responded at 3.6 percent.

Panels also were created for older buyers. For buyers who previously had purchased more than 13 months ago, those not mailed responded at 3.4 percent; those mailed responded at 2.8 percent. This isn’t a one-time test. We’ve repeated this test with several clients and seen similar results."

This is fascinating and worthy of careful consideration given that one might actually be losing money - and not merely wasting it - by sending catalogs to internet-driven shoppers at all.  In an attempt to get a better handle on the implications of this finding, I wrote to John with a few questions … Read the rest of this entry »

The short-term results — in terms of sales and profit — of a particular advertisement or promotion can be completely misleading.  A promotion that seems to perform well early on might spell future disaster for the business.  Similarly, promotions that "lose money" might be goldmines in disguise.  It all boils down to evaluating the tail end of the promotion rather than focusing on the head (the latter being all too often the case).  Let's say you run an ad a popular product dropping your regular price by 20%.  This deal is lower than any of your competitors and, despite the huge discount, is slightly profitable.  Two months later you find that ad generated nearly 4x as many orders as previous ones.  And it even generated 8% more gross profit despite the significantly lower margin.  "It's just a numbers game and this ad performed better," right?  Wrong.  Not these numbers, anyway.  One must take the long-term view, i.e. the promotion's "tail" into account.   Imagine that, 18 months later, the following was observed about customers who had been acquired by this promotion:

1. They reordered only 1.2x on average compared to 3.4x for existing customers;
2. Their future sales and profit were on average 46% and 57% lower, respectively, than for ads run previously at the regular price;
3. Veteran customers who responded to the ad subsequently reordered at an 18% lower rate than their cohorts.

In short, the new ad attracted lower quality customers who — on average — ordered much less frequently and spent far less money than existing ones. The result? The CLV of this new group of discount-acquired customers was dramatically lower than previous ones acquired at the normal/higher price point.  Just as bad, existing customers who responded to the promotion were "tainted" by the experience and became less valuable buyers afterwards.  This seemingly positive promotion turns out to have negatively impacted the health of the business.  Unfortunately, such long term effects are (i) frequently overlooked, and (ii) often lead to poor strategic decision making resulting in lower sales and profit in the future.  Difficult though these factors may be to measure, it's essential to make your assessments based upon the long view, not the short one.  So, when you're evaluating promotions be sure to think tail  — not head. // lm