July 25, 2010

Dear Catalog CEOs: A Methodology Hint

Dear Catalog CEOs:

Now that folks are terrified of the looming postage rate increase, you're probably going to turn to the Multichannel Forensics methodology to save mailing expense.

Wise decision!

As you already know, I score every customer in your file. Every customer is evaluated on the basis of their spending potential over the next twelve months. It looks something like this:
  • Probability of Buying, Next 12 Months = 40%.
  • Amount Spent, Next 12 Months, if Customer Purchases = $150.
  • 12 Month Value = 0.40 * $150 = $60.00.
Of course, this $60.00 figure isn't important. What is important is how much the customer will spend if you stop mailing catalogs altogether.

The methodology predicts the percentage of demand generated without catalog mailings. This means that customers are evaluated only on their ability to spend money because of catalog marketing. This methodology is different than the matchback analytics that you've all used.

Here are two customers who my methodology considers to be identical in value.
  • Customer #1 is worth $100 next year, with 10% coming from catalog marketing, 90% organic. Catalog Value = $100 * 0.10 = $10.00.
  • Customer #2 is worth $15 next year, with 66.7% coming form catalog marketing, 33.3% organic. Catalog Value = $15.00 * 0.667 = $10.00.
Odds are that your statistical modeler or database provider demands that you mail customer #1, ranking that customer as being really, REALLY good.

My methodology views the two customers as being equal. Brand loyalty drives Customer #1, catalog marketing drives Customer #2. Both are equally valuable, when viewed via catalog marketing.

As mentioned last week, spots for Fall are starting to fill up, as smart Catalog Executives ask to have their Multichannel Forensics projects completed before the postage increase hits. Contact me now to reserve your project date!

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