January 07, 2008

Multi-Channel Profit Tip: Long-Term Forecasting

Please click on the image to enlarge it.

Most of our multi-channel subscribers manage mature businesses. In other words, the multi-channel brand is maybe a decade old, or more.

In mature multi-channel businesses, catalogs are rapidly evolving toward an advertising channel for housefile customers. With the cost of paper, recycled paper, postage, and merchandise delivery increasing, and prospecting universes decreasing (and yes, your co-op universes will begin decreasing, you'll just not know it as long as co-op statisticians continue to improve targeting skills), new customer acquisition will become an online necessity.

Catalogers don't like this reality, and for good reason. Online customers typically have lower annual repurchase rates, lower annual spend, and lower lifetime value than customers acquired via catalog marketing.

2008 is the year that multichannel brands must embrace long-term forecasting. The long-term health of the multichannel brand depends upon an accurate forecast of the future.

In the attached example, the multichannel brand is being starved of new phone/mail customers acquired via catalog marketing.

So the brand must continue to drive customer acquisition online. Catalogs may be one source of new customers. All the other online favorites (paid search, natural search, affiliates, e-mail, portal advertising, shopping comparison, blogs, social networks) become critical.

In this example, notice that by year five, the entire brand stalls. Even though online customer acquisition is at least fifty percent more than it is today, the brand stalls, because of the continued leakage in the phone/mail/catalog channel.

Multichannel Profit Tips:
  • Use long-term forecasting (aka Multichannel Forensics) to understand the future trajectory of a multichannel business.
  • Develop a five year investment strategy that allows you to hit the appropriate number of long-term acquired customers required to grow the total brand.
  • Determine if it is possible to increase online customer acquisition by fifty percent over five years if cataloging is not as viable a customer acquisition channel.
  • Run profit and loss scenarios assuming increased merchandise delivery costs, postage costs, paper (and recycled paper) costs. Understand if you will be able to leverage your fixed costs in five years as operational costs increase.
Ours is an industry at an inflection point. We really need to start simulating future outcomes that provide us the best path to long-term profitability.