October 05, 2009

OMS: Merchandise Mix

If you'd like to follow along, please send me a message via e-mail, and I'll send you a copy of the spreadsheet.

Today we're going to talk a little bit about the role that merchandise mix plays in a business. Our online businesses are often managed by campaigns and landing pages. We execute offline campaigns (catalogs or direct mail or whatever works for you), and we execute a ton of online campaigns.

On average, we don't care what sells nearly as much as we care about the campaigns that work. We optimize our business based on the campaigns that deliver an acceptable return on investment.

But what happens when we cause customers to buy a different set of merchandise? In other words, does the future of the business change if I influence the merchandise that a customer purchases?

Give this a try. Zero out cells C5 - G5. Zero out cells B101 - B340. Enter "1,000" into cell B130.

Notice that these customers love Merchandise Department 11. After five years, they still spend more than half of their money in this department. After five years, the customers who stay active purchase 2.6 times a year, purchasing 2.9 items per order at $80 per item.

Now zero out cell B130, and type "1,000" into cell B136. These customers love Merchandise Department 14, but these customers are at least a little bit more willing to shift their money across other departments. After five years, the customers who keep active purchase 2.6 times a year, purchasing 2.6 items per order at $105 per item.

This is a tame example, one where the customer is fundamentally different, but the outcome after five years is not dramatically different.

That being said, it's a good thing for you to pay attention to this trend. Are your keywords causing you to acquire customers who have a preference for only a specific item or set of items, causing you to not achieve the long-term potential you'd like to achieve? Do your e-mail campaigns influence the merchandise preferences of your customers?