Online business models are very enjoyable to manage. Executives have a veritable plethora of metrics available to measure the effectiveness of their business, in stark comparison to catalog or retail executives.
That being said, online business executives often have less experience managing business models "across time". In other words, online business growth can be forecast over multiple years, so that the online executive can understand the long-term impact of today's business decisions. This is an area where catalog/retail executives traditionally have more experience.
This week, we'll take a look at an online-only business model that sells Golf Clubs, Golf Accessories, and Golf Apparel. This business is five years old, and management is not pleased with the sales growth of the Accessories division. Last year, sales of Golf Clubs totaled $8.6 million. Sales of Golf Accessories were $4.8 million. Sales of Golf Apparel were $9.9 million.
A new Accessories merchant was hired. Management hopes to grow Accessories through an improved merchandise assortment.
Anytime a change in management occurs, it is wise to conduct a Multichannel Forensics analysis, to understand how customers are behaving. The image at the start of this article illustrates the "Migration Probability Table", a grid of numbers that help the business leader understand how customers migrate between merchandise divisions.
Notice some of the interesting findings:
- On average, 48.6% of last year's purchasers will buy again this year. This puts the online golf brand in "Hybrid Mode", meaning that the business grows through a mix of customer retention and customer acquisition activities.
- Golf Clubs have a 39.6% repurchase rate. Being in "Acquisition Mode", Golf Club sales grow by finding a constant supply of new Gulf Club purchasers. This means that Golf Club buyers don't buy new clubs every year. The 71.8% repurchase index for Golf Accessories means Golf Club buyers are likely to "transfer" their allegiance from Clubs to Accessories in the year after buying Clubs.
- Golf Accessories have a 37.9% repurchase rate (Acquisition Mode), and the repurchase index metrics suggest Accessories buyers are in "Equilibrium" with Clubs and Apparel. In other words, Accessories buyers will purchase just about any merchandise in the year after buying Accessories.
- Golf Apparel has 47.3% repurchase rate (Hybrid Mode). These buyers are unlikely to buy Golf Clubs next year, but are willing to buy Accessories.
We'll explore growth opportunities this week.