February 23, 2008

Multichannel Customers Are Not The Most Profitable Customers

This will probably stick in the craw of the multichannel establishment.

Have your data guru run this query.
  • Step 1: Identify all customers who purchased via catalog or online channels during 2006.
  • Step 2: Identify customers who were between the 30th and 40th percentile in 2006 spend. In my case, this is $200 - $300 in 2006 spend.
  • Step 3: Split this audience into three groups, based on 2006 activity.
    • Catalog-Only customers in 2006.
    • Online-Only customers in 2006.
    • Multichannel Customers (Catalog + Online) in 2006.
  • Step 4: Measure repurchase rate, total sales, marketing cost, and profitability for each segment during 2007.
This is a forward-looking set of metrics, the type you need to run to really understand multichannel customer value, after controlling in some limited way for historical spend.

Take a look at this example from a catalog brand:

Future Twelve Month Value Of Last Year's Buyers: $200 - $300 Spend Last Year








Catalog Web Cases Rebuy Spend Sales Mktg Profit








Yes No 8,839 50.2% $295.08 $148.13 $20.00 $24.44
No Yes 6,217 43.6% $288.39 $125.74 $9.00 $28.72
Yes Yes 2,374 55.2% $295.67 $163.21 $23.00 $25.96


Oh oh. Those vaunted multichannel customers are not the most profitable. Why?

One of the realities of multichannel marketing is that the "best" customers are most likely to be receptive to the "most" advertising channels. So in this case, the catalog brand bombs this customer --- saturating her with a veritable plethora of catalog and e-mail campaigns.

In addition, this customer does her own shopping, independent of catalog and e-mail marketing. She uses Google to search for merchandise. She utilizes affiliates, shopping comparison sites, portals, you name it. The cataloger spends money on all of those channels, so in essence, the customer is spending your marketing money on your behalf!

Your multichannel customer, the one you're focusing all this energy on in order to create a seamless multichannel experience, often end up being less profitable ... and we haven't even factored in systems integration costs yet.

We must find ways to reduce our investment in marketing to multichannel customers, so that self-directed customer investment (paid search, shopping comparison sites, affiliates, portals) doesn't cause an overall "over-investment". History is littered with ways to increase investment in multichannel customers, it is time to go the other way.

I'm guessing three out of four catalogers reading this blog will observe similar results, if this query is run at leading catalog brands.

Is this what you are observing when you measure the total profitability of customer segments?

2 comments:

  1. Kevin,
    One thing to be careful about: Most catalog companies essentially subsidize their website costs by using catalog images/creative/etc. So properly allocating a portion of this costs to web might change this picture a bit.

    In other words, if you move to online-only, you still have some of the creative costs that are currently no being push (in most cases) to the website.

    Make sense? I think it's difficult to reach a conclusion here without understanding the cost structure better.

    By the way, enjoyed meeting you at the Executive Forum.

    Thanks,
    Jay

    ReplyDelete
  2. Sure Jay, that makes perfect sense!

    It was nice to meet you as well, thanks for taking the time to participate in the Forum.

    Thanks,
    Kevin

    ReplyDelete