September 18, 2011

Dear Catalog CEOs: Comp Segment

Dear Catalog CEOs:

There are many ways to evaluate how your business is performing.
  1. Catalog Response Rates.
  2. Online Traffic and Conversion Rates.
  3. New Customer Counts
None of these metrics do an acceptable job of answering a very important question.
  • How is my merchandise offering performing?
Catalog response rates are impacted by channel shift, by competing catalogs, file quality within a segment, offers/promotions, and pages offered in a catalog.  The same concepts hold for your online metrics.  And new customer counts are directly impacted by your customer acquisition strategy.

I'm frequently confronted by business leaders who don't understand how their merchandise offering is performing.  Too often, external factors and strategies impact how merchandise performs ... you offer 30% off and all of a sudden your merchandise is selling 25% better, well, that's not because of the merchandise you are offering the customer, is it?

I like to look at this a bit different than everybody else.  It's going to be hard to eliminate the impact of your promotions and the economy and your marketing strategy and all that stuff.

Here's what I do.
  1. I like to isolate a segment of customers ... frequently 0-12 month 2x (in the past year) buyers, as of a date (say August 31).
  2. Then, I measure average spend per customer in this segment in the next month ($9.00).
  3. Finally, I compare this metric ($9.00) against a comparable segment of customers in the prior year in September (say $10.00).  The difference (9/10)-1 = -10%, this is the "comp segment performance".
This is about as close as I've been able to get to measuring how good customers behave and evolve over time.  Sure, there are a million other ways to do this, so go ahead and use whatever technique you want to use.

That being said, this methodology allows you to clearly identify when business is improving, and when it is tanking.

If you average the performance of each segment across a year, you'll see interesting trends as well.

In almost all of my projects, I'm asked to perform some level of a "comp segment analysis", in order to help the CEO understand how well the merchandising team is performing.

So why not have your analytics guru give this a try?  You'll clearly be able to see the impact of the collapse of the economy, and any perceived improvement in the economy in the past two years.

2 comments:

  1. Does this kind of segmenting also work for Sq. Inch or SKU analysis? I had to do some tricky analysis on the performance of a set of products, and it's hard to isolate the performance of a set of products (too many other changes), even just comparing against past performance.

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  2. It works well for square inch analysis, as long as you do the analysis for a comparable group of customers ... if you change the circulation mix (more newbies, more reactivated buyers), then it all falls apart.

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